By Lisa Pauline Mattackal and Medha Singh
(Reuters) -British stock indexes fell on Wednesday as investors reined in bets on interest rate cuts by the Bank of England, while global risk sentiment was fragile ahead of a U.S. Federal Reserve policy decision later in the day.
The blue chip finished 0.7% lower and had the biggest losses among European peers, while an index of mid-cap shares fell 0.5%. Both indexes closed Tuesday at their highest since early September.
Annual consumer price inflation in Britain remained stable at 2.2% in August, in line with forecasts, data showed. However, services inflation – a figure the Bank of England is closely monitoring – rose to 5.6%, slightly more than forecast.
The British pound rose against the dollar as inflation figures put further pressure on the FTSE 100’s export-oriented companies.
Evidence of persistent inflation pressures prompted traders to cut their bets on a BoE rate cut on Thursday, where policymakers are expected to leave rates unchanged.
“The rise in services prices has been more pronounced in Britain than in the other major economies, which explains why we think UK interest rates will only be cut gradually,” said Andrew Wishart, senior UK economist at Berenberg.
Meanwhile, US stocks moved lower as investors remained cautious ahead of a policy announcement from the Federal Reserve, which is expected to begin its policy easing cycle later in the day, although the extent of the rate cut is still unclear.
Futures prices show that the probability of a 50 basis point rate cut has risen to 55% from about 14% a week ago, according to CME’s FedWatch tool, even as most major brokers are still forecasting a 25 basis point cut.
Reckitt Benckiser (LON:) rose 1.2% following a media report that the company is in early discussions with potential suitors for a sale of its home care business.
Losses were broadly spread across subsectors, with the exception of defense and telecom.
