FTSE 100 Dips on Inflation Concerns, Pound Hits Two-Month High

Britain's FTSE 100 index fell to a two-week low, impacted by slower-than-expected inflation deceleration, dashing hopes for a June rate cut by the Bank of England. The pound strengthened while sectors like homebuilders suffered. Marks & Spencer and Mitchells & Butlers saw notable gains despite the market downturn.

Britain's FTSE 100 stock index hit a two-week low on Wednesday as slower-than-expected deceleration in Britain's inflation knocked off hopes of a June interest rate cut by the Bank of England, while Marks & Spencer's gained on upbeat annual profit.

The blue-chip FTSE 100 index fell 0.3%, set for its biggest drop in more than a month. The pound strengthened against the dollar and touched a two-month high of $1.2732. British consumer prices rose 2.3% in April, slowing from a 3.2% increase in March, while economists polled by Reuters expected a 2.1% rise.

The two-year gilt yield that moves closely with expectations of interest rates rose to its highest in three weeks at 4.462%. "There's a bit of a slump... but still quite a bit of good news in this print, but the BoE cut in June is essentially off the table," said Thomas Gehlen, senior market strategist, SG Kleinwort Hambros.

A stronger pound and a falling bond is "just indicating that the rate cutting path is pushed backwards by a month or two." Money markets are now pegging a mere 14% chance of a BoE rate cut in June, with a cut now fully priced only in November.

Among sectors, rate-sensitive homebuilders were the worst hit after the inflation data, sliding 1.6%. Nvidia's quarterly results, due later in the day, are also on the market's radar, and could spark a $200 billion swing in the AI-darling's shares.

Keeping losses in check, Marks & Spencer jumped 8.9%, after the retailer reported a 58% rise in annual profit, beating market expectations. Mitchells & Butlers gained 13.7% after the pub group forecast its annual results to be at the top end of consensus expectations.

RS Group fell 5.0% after the electronics products distributor posted weak full-year results.

The mid-cap FTSE 250 dropped 0.4% to 20,707.59 points.