• FTSE 100 down 0.69%.
• FTSE 250 falls 0.52%.

The UK reported a surprise fall in inflation to 9.9% in the last 12 months to August, from 10.1% in July.

Inflation remains near its 40-year high, and soaring living costs are still eating away at household budgets as the Bank of England states inflation could peak at more than 13% this year.

Therefore, UK shares dipped on Wednesday as a drop in inflation was unable to overshadow bets of the BoE raising rates.

The FTSE 100 is down 0.69%, and the FTSE 250 has fallen 0.52% at the time of writing.

The BoE will announce its interest rate decision on 22 September, with investors pricing in a 75 basis point rate hike.

Market Data:

Food and non-alcoholic beverage prices rose by 13.1% in the 12 months to August 2022. It is currently at its highest level since 2008.

Therefore, one market to keep an eye on is the supermarket sector. The increase in inflation for food and beverages will likely impact the higher-priced supermarket chains.

Supermarkets such as Ocado and Tesco are among the most expensive stores to shop with, according to Which.

Ocado has already seen a 60% fall in its shares this year. On Tuesday, the company provided a Q3 trading statement in which it said consumers are shopping smaller baskets and seeking value for money, with the average basket down by 6%. As a result, it is expected to weigh on the company’s profitability in Q4.

The above graph shows the contribution to the change in inflation between July and August. The easing in annual CPI was driven by transport, which fell 0.37%.

However, clothing and footwear increased by 0.05%, and it is a market that must be watched closely. As the prices of clothing continue to rise, shoppers may opt for discount retailers as household spending continues to fall.