UK Stocks Dip as Investors Await Federal Reserve Policy Decision

British stock indexes fell on Wednesday, impacted by an inflation report and awaiting the Federal Reserve's policy decision. The FTSE 100 and midcap stocks dropped by 0.2%. UK annual consumer price inflation remained at 2.2%, while services inflation rose to 5.6%. The British pound strengthened, impacting export-focused companies.

British stock indexes retreated on Wednesday following an inflation report that aligned with forecasts, and as investors eagerly awaited an anticipated yet uncertain Federal Reserve policy decision later in the day.

At 0707 GMT, the blue-chip FTSE 100 and midcap stock indexes were both down 0.2%, having reached their highest levels since early September on Tuesday. UK annual consumer price inflation held steady at 2.2% in August, unchanged from July, but services inflation rose to 5.6%, slightly above expectations.

The British pound reached a session high against the dollar after the inflation data, pressuring the FTSE 100's export-focused companies. The data suggests persistent inflationary pressures, prompting traders to cut bets on the Bank of England reducing rates at its Thursday meeting, where no changes are expected.

Michael Brown, senior research strategist at Pepperstone, commented, 'Today's inflation figures may at least give the MPC's hawks some pause for thought, while also evidencing that the Bank's continued caution and focus on signs of underlying inflation persistence is indeed warranted.' Globally, investors remain fixated on the Federal Reserve, which is expected to ease policy later in the day, with uncertainty surrounding the size of the rate cut.

Market predictions for a significant 50-basis-point rate cut have surged to 61% from around 14% a week ago, according to CME's FedWatch tool, though most major brokerages still anticipate a 25-basis-point reduction. Reckitt Benckiser led gains in the FTSE 100, rising 2% following a report that it had initiated early discussions with potential buyers for its homecare assets, boosting the personal care index by 0.4%. In contrast, a mining index dropped 0.8% as metal prices declined ahead of the Fed's decision.

(With inputs from agencies.)