FTSE 100 slips as inflation worries offset Burberry’s strong forecast

London’s FTSE 100 slipped on Wednesday as a rise in consumer prices to 30-year highs further fuelled bets of interest rate hikes, although strong profit forecasts from luxury brand Burberry and education group Pearson (LON:PSON) helped limit the losses.

British consumer price inflation rose more than expected to 5.4% in December, official data showed, adding pressure on the Bank of England (BoE) to raise interest rates again next month.

The blue-chip FTSE 100 index fell 0.1%, mirroring cautious moves in global markets as rising U.S. Treasury yields kept high-growth stocks under pressure. [MKTS/GLOB]

“The view that the current high readings are transitory is starting to sound a bit hollow,” said Alan Custis, managing director at Lazard Asset Management. “We would expect inflation to peak nearer 7% in 2022, which will keep the pressure on the BoE to continue increasing interest rates.”

Signs of inflationary pressures and labour market strength drove investors to ramp up rate hike bets, pushing UK’s benchmark bond yield to its highest since March 2019, while shorter-duration yield touched October 2018 highs.

A jump in banking stocks and energy majors, supported by rising rate hike expectations and a rally in crude prices respectively, has helped the FTSE 100 this year rise 2.4%, compared with a 1.6% drop in the wider European index.

Burberry gained 5.8% after the luxury brand said its annual profit would beat market expectations as the company’s full-price sales accelerated in the third quarter.

Pearson gained 4.6% after it raised its forecast for full-year adjusted operating profit in a boost to management efforts to restructure the business.

The domestically focussed mid-cap index was flat, with WH Smith (LON:SMWH) Plc jumping 5.1% on expectations of a resumption in the recovery of its travel markets even as the retailer said it was experiencing a “small impact” from the Omicron coronavirus variant.