UK's FTSE 100 fell for a seventh straight session on Thursday, after red-hot U.S. inflation data bolstered bets for aggressive rate hikes, overshadowing a boost from reports that the British government was discussing making changes to its fiscal plan.
The blue-chip FTSE 100 index (.FTSE) fell 1.6%, while the midcap FTSE 250 (.FTMC) slipped 0.4%.
Stocks briefly rebounded, with the domestic index climbing as much as 3.2%, after Sky News reported the government was looking at which parts of the tax-cutting package might be ditched in a further U-turn by Prime Minister Liz Truss.
"Given the risk to Truss, I expect we will see measures announced that do not reverse totally what was announced in the mini-budget, but rather it will be made significantly less generous, just enough so that she can avoid losing too much face," said Stuart Cole, head macro economist at Equiti Capital.
Data showing a hotter-than-expected rise in U.S. consumer prices last month only added to investor worries about the impact of rising inflation globally and tighter monetary policies on corporate profits ahead of the earnings season in the United States and Europe.
"The central banks remain very focused on inflation for now, and we don't expect that to change anytime soon," said Andrea Cicione, head of research at TS Lombard.
UK assets have come under pressure since last month when the new government's economic plans, aimed at spurring growth, sparked concerns about how they would be funded and caused a sharp spike in borrowing costs. Rate-sensitive banks (.FTNMX301010) and insurers (.FTNMX303010) that have been clobbered in the last few sessions by the turmoil in bond markets, added 1.3% and 1.2%.
A survey showed British house prices rose last month at their slowest pace since early in the coronavirus crisis and they look on course to fall as a surge in mortgage costs adds to uncertainty about the economy for home-buyers.
