London stocks fall after inflation data shock, homebuilders slump

By Ankika Biswas and Shashwat Chauhan

(Reuters) -British equities fell on Wednesday as a still-high inflation reading deepened worries that the Bank of England (BoE) may keep interest rates higher for longer, a day before it meets to set rates.

The FTSE 100 slipped 0.1%, touching a three week low in intraday trading, while the FTSE 250 mid-cap index lost 0.9%, hitting an 11-week low.

Data showed British inflation defied predictions of a slowdown and held at 8.7% in May, putting yet more pressure on the BoE a day before it is expected to raise interest rates for the 13th time in a row.

Last month, data showed inflation rate fell less than expected and core prices had surged.

"We've had two bad numbers in a row now and it does suggest that the Bank of England has lost control a little bit," said Patrick Farrell, chief investment officer at Charles Stanley & Co in London.

"It's not a rosy picture and that combined with the wages numbers does give me cause for concern going forward."

Official data last week showed British wage growth increased and employment also jumped.

Rate-sensitive homebuilders slumped 3.2% on concerns over elevated mortgage rates following the inflation data, and also dented by a 1.6% fall in Berkeley Group Holdings following a demand warning.

Meanwhile, Federal Reserve Chair Jerome Powell said in prepared remarks that the Fed's fight to lower inflation "has a long way to go," shortly before a testimony to Congress.

British banks were amongst the biggest drag on the FTSE 100, with NatWest Group and Lloyds Banking Group losing 4% and 2.4%, respectively, after Exane BNP Paribas downgraded both the stocks.

Helping cut losses, heavyweight energy stocks gained 1.9%, tracking higher crude prices. [O/R]

Among individual movers, Halfords jumped 8.3% on plans to grow its bikes and car parts' market share to boost profits, while THG advanced 6.8% on expecting a significant increase in first-half profit.

AO World gained 5.7% after Davy Research raised the online electricals retailer's rating to "outperform" from "neutral".

(Reporting by Ankika Biswas, Shashwat Chauhan and Khushi Singh in Bengaluru; Editing by Sonia Cheema, Varun H K and Philippa Fletcher)