London markets slump as investors await US rates outlook

London markets slumped on Wednesday after new data showed wage rises were still driving up costs across the UK services sector, a closely followed index for Bank of England policymakers.

The purchasing managers’ index (PMI) showed that businesses topping up salaries was offsetting declines in fuel and electricity costs.

It could prompt more interest rate hikes to get inflation under control, economists suggested.

Meanwhile, investors appeared to be nervous ahead of the Federal Reserve’s meeting minutes later today, which gives an indication of the US’s inflation forecast and path for future interest rates.

Francesco Pesole, at ING, said: “First of all, the minutes will shed some light on the compromise between keeping rates on hold but strongly signalling more hikes ahead.

“From a market perspective, it will be key to gauge where most of the committee sees core inflation dynamics going and the scope for further tightening.

“Markets will also be sensitive to any details about members’ positions on rate cuts.”

The downbeat mood saw London’s FTSE 100 sink more than 1% on Wednesday after only narrow losses earlier in the week.

It closed 77.62 points lower, or 1.03%, to 7,442.1.

Elsewhere in Europe, Germany’s Dax closed 0.63% lower, and France’s Cac fell 0.8%.

In the US, trading started on the back foot with the S&P 500 down 0.16% and Dow Jones down 0.25% by the time European markets closed.

The pound was relatively flat against the US dollar at 1.2709, and up 0.2% against the euro to 1.17.

In company news, sportswear giant JD Sports Fashion saw its share price slip after being found to have colluded with Leicester City FC to restrict competition in selling club clothing, including replica kit.

The anti-competitive behaviour resulted in an £880,000 fine for the football club, the UK’s competitions watchdog said. But JD avoided a fine because it reported the illegal activity.

Nevertheless, JD’s share price closed 1.7% lower.

Shares in fashion retailer Quiz tumbled after the chain warned investors it was facing tough trading conditions as shoppers come under pressure from inflation.

The company posted a jump in profits for the past year but a decrease in revenues in recent months, amid the challenging backdrop.

It was enough to spook investors and its share price dropped by 11.7% at close.

The biggest risers on the FTSE 100 were Pearson, up 20p to 837.4p, Tesco, up 1p to 248.8p, Convatec, up 0.8p to 203.8p, AstraZeneca, up 40p to 10,620p, and BAE Systems, up 1.8p to 910.8p.

The biggest fallers on the FTSE 100 were Ocado Group, down 41.8p to 573.4p, Prudential, down 43p to 1,063p, Severn Trent, down 89p to 2,450p, United Utilities Group, down 29p to 932.8p, and M&G, down 5.65p to 187.9p.