UK inflation slows and selling eases across global indices

​​​UK inflation data provides relief for markets

​UK inflation delivered welcome news as the Consumer Price Index (CPI) eased to 3.6% in October from 3.8% the previous month. This marks the first decline in seven months and reinforces market expectations that the Bank of England (BoE) will cut interest rates in December.

​The slowdown came despite food prices remaining stubbornly high, with food and non-alcoholic beverages the biggest upward contributor to the overall reading. Broad-based increases across key categories continue to squeeze household budgets, though the downward trajectory in headline inflation offers some encouragement.

​Markets responded positively to the data, with gilt yields falling across the curve. The 10-year gilt yield dropped sharply as traders priced in a higher probability of near-term monetary easing. This shift in rate expectations provided support for UK equities.

​The inflation reading suggests the BoE has more room to manoeuvre on rates. While the central bank remains cautious about declaring victory over inflation, this data point strengthens the case for policy easing as economic growth remains subdued.

​FTSE 100 outperforms European peers

​The FTSE 100 opened higher after four consecutive sessions of declines, benefiting from its defensive composition. The index is holding up better than continental European benchmarks, partly due to its limited exposure to the technology sector.

​European markets have struggled this month as concerns about stretched tech valuations weigh on sentiment. The Stoxx Tech Index is the weakest European sector in November, with global chip and AI-related names suffering sharp losses. The FTSE 100's heavy weighting towards financials, energy and consumer staples has proved advantageous.

​Continental bourses steadied on Wednesday after Tuesday's sharp selloff, with the Stoxx 600 trading flat. Investors are adopting a wait-and-see approach ahead of Nvidia's earnings, which could determine whether technology valuations can hold at current levels or face further pressure.

​Individual stock movers across UK markets

​Company-specific news drove significant moves across the UK market. Genus jumped after providing a brighter profit outlook, while Rotork rose following the announcement of a new share buyback programme. Both moves demonstrate investor appetite for companies with strong cash generation.

​On the downside, Workspace slumped after reporting lower rental income, reflecting broader concerns about the commercial property sector. WH Smith hit a five-year low after its chief executive resigned over accounting irregularities, a development that sent shockwaves through the retail sector.

​Sage climbed after unveiling a £300 million buyback and guiding for rising operating margins, a combination that typically attracts shareholder support. Similarly, Smiths Group launched a £1 billion buyback while reiterating its full-year outlook, providing reassurance about capital allocation priorities.

​Ocado faced renewed pressure, falling sharply for a second consecutive session after Kroger closed three automated warehouses in the United States. The news raises questions about the pace of future site rollouts and the viability of Ocado's technology licensing model.

​Travel sector shows resilience

Jet2 gained ground after posting upbeat interim results that highlighted robust demand for package holidays. The budget airline and tour operator reported that booking windows remain shorter than historical norms, but demand strength is offsetting this shift in consumer behaviour.

​The company announced expanded operations at Gatwick Airport from 2026, signalling confidence in sustained travel demand despite economic headwinds. This contrasts with the caution evident in other consumer-facing sectors, where spending patterns remain uncertain.

​Travel and leisure stocks have generally outperformed expectations this year, benefiting from pent-up demand following pandemic restrictions. However, the sector remains sensitive to economic data, as discretionary spending typically weakens when households face financial pressure.

​Technology sector faces valuation concerns

​The technology sector remains under pressure across global markets, with the Stoxx Tech Index leading declines among European sectors this month. Concerns about stretched valuations have intensified following recent earnings reports from major US technology companies.

​Nvidia's upcoming earnings release has become a focal point for markets, as investors seek evidence that artificial intelligence spending can justify current share prices. Any disappointment could trigger further selling across the technology sector, particularly in chip manufacturers and AI-adjacent names.

​The selloff in technology stocks has been sharp but not yet severe enough to suggest a broader market correction. However, the concentration of gains in a handful of mega-cap technology names means these stocks carry significant influence over benchmark indices.

​Bank of England rate cut expectations build

​The October inflation reading has shifted expectations around BoE policy. Money markets now price in a roughly 80% probability of a December rate cut, up from 60% before the data release. This would mark the second consecutive reduction following the cut in November.

​The central bank has emphasised that policy decisions remain data-dependent, meaning upcoming employment and growth figures will also factor into the December decision. However, the inflation trajectory provides room for the Monetary Policy Committee to lean towards easing.

​Lower interest rates typically support equity valuations by reducing the discount rate applied to future earnings. 

​Food price inflation remains stubborn

​While headline inflation moved lower, food prices continue to rise at an uncomfortable pace. Food and non-alcoholic beverages were the largest contributor to October's overall inflation reading, with increases evident across most categories.

​This persistence in food inflation presents a challenge for policymakers and consumers alike. Even as energy prices moderate, the cost of basic groceries remains elevated compared to pre-pandemic levels. This squeeze on household budgets could weigh on consumer spending in coming months.

​Supermarket chains have faced political and media pressure to reduce prices, but many cite ongoing supply chain costs and wage increases as constraints. The competition between traditional retailers and discount chains like Aldi and Lidl remains intense.

​Market outlook and trading implications

​UK markets are navigating a complex backdrop of moderating inflation, rate cut expectations, and global growth concerns. The FTSE 100's defensive positioning has proved beneficial during recent market turbulence, though this could reverse if risk appetite returns.

​Sector rotation remains a dominant theme, with money flowing out of expensive growth stocks and into more attractively valued areas. This shift creates opportunities for active traders to capitalise on relative value plays across different market segments.

​The coming weeks will bring crucial data points including employment figures, retail sales, and the BoE's December policy meeting. These events could significantly influence market direction heading into year-end, a period often characterised by lower volumes and heightened volatility.