Early market roundup: FTSE 100 slips as UK inflation rate tops view

London stocks opened mostly lower on Wednesday as hotter-than-expected UK inflation and rising borrowing weighed on sentiment ahead of next week's budget, although gains in oil majors helped limit losses.

The FTSE 100 index fell 16.75 points, 0.2%, at 10,716.25. The FTSE 250 edged up just 1.72 points at 24,366.48, and the AIM all-share fell 0.62 of a point, 0.1%, to 762.31.

The Cboe UK 100 traded down 0.1% at 1,063.67, the Cboe UK 250 was 0.2% lower at 21,436.19, while the Cboe small companies was down 0.1% at 18,923.94.

In European equity markets on Wednesday, the CAC 40 in Paris was up 0.2%, but the DAX 40 in Frankfurt was up slightly.

The pound was quoted at USD1.3384 early Wednesday, rising from USD1.3376, where it stood at the time of the London equities close on Tuesday. Against the euro, sterling firmed to EUR1.1911 from EUR1.1901. On Tuesday, sterling hit its best level against the common currency since May 2025.

The euro faded to USD1.1223 from USD1.1234. Against the yen, the dollar was trading at JPY158.08, down from JPY158.13.

The Office for National Statistics said the annual consumer price inflation rate accelerated to 3.5% in September, from 3.1% in August. The September reading topped the FXStreet-cited consensus of 3.4%.

It was the quickest pace of yearly consumer price growth since October 2025.

On a monthly basis, consumer prices rose 0.4% in September, having climbed 0.5% in August from July.

September's reading was above the FXStreet-cited forecast of a 0.3% rise.

But ING analyst James Smith sees little evidence of second round effects from the energy price shock.

"What's particularly eye-catching though is the month-on-month fall in food prices. This caps a remarkably benign period for food inflation. No doubt it will pick up into the winter, not least given the recent rise in natural gas prices. But all the models tell us we should be seeing some effect of the energy shock in food – and so far we aren't," Smith said.

The inflation figures put central bankers in focus, but public sector borrowing placed eyes on fiscal policymakers, just a week before the budget.

Separate figures on Wednesday showed public sector borrowing rose to £24.52 billion in September, from £17.25 billion in August. August's figure was downwardly revised from around £18.3 billion.

Borrowing for September was above the prior year's £22.76 billion.

"Spending, including higher debt interest costs, increased more than government income, partly reflecting the impacts of inflation," the ONS said.

Borrowing was £97.8 billion in the financial year up to September, down 4.3% on-year, but £6.0 billion above an Office for Budget Responsibility forecast. The UK financial year runs from April 1 to March 31.

Pantheon Macroeconomics analysts Rob Wood and Elliot Jordan-Doak commented: "Still, the small good news in this morning's release will have little bearing on either the government's plans in the Budget or the OBR's big-picture calculations. Revenues are running above profile this fiscal year, but that is because growth has been stronger-than-expected, while the tax-intensity of the economy has been weaker than forecast.

"Meanwhile, higher inflation over the rest of the fiscal year will boost day-to-day spending on welfare payments as well as debt interest costs. We anticipate that the OBR's pre-measures forecast will rule that the headroom available to Healey has been reduced to £11.4 billion in 2029/30, from £23.6 billion - using market prices during the OBR's conditioning window - largely because of higher debt interest payments driven by higher inflation. The government's headroom would be around £3 billion lower still if the sharp sell-off in gilts since the conditioning window closed is factored in."

The yield on the US 10-year Treasury was quoted at 5.11%, where it stood at the time of the London equities close on Tuesday. The yield on the US 30-year Treasury was similarly steady at 5.43%.

In the US on Tuesday, the performance on Wall Street was mixed, with the Dow Jones Industrial Average up 1.0%, the S&P 500 up 0.3% but the Nasdaq Composite ending marginally lower.

Two tech names reported after the closing bell, to mixed reviews.

SpaceX added 8.1% in after hours dealings, but Netflix fell 5.8%.

"We know there's some investor concern about our view hours growth. Member response to our 2026 price increases is consistent with prior price changes and our expectations, an indicator that our engagement - which encompasses quantity, quality and variety of viewing - remains healthy and that we continue to deliver strong value to members. But we do seek to accelerate growth in view hours as well, and we're confident we'll do that by relentlessly focusing and executing against the aforementioned strategy," Netflix said in a shareholder letter alongside its financial results.

Elon Musk on Tuesday confirmed SpaceX is discussing the possibility of a merger with his electric vehicle business Tesla.

Musk is chief executive of both Starbase, Texas-based aerospace, satellite communications and artificial intelligence company SpaceX, and Austin, Texas-based EV and technology firm, Tesla.

Musk said the Tesla and SpaceX special committees were formed at shareholders' request and do not include him. They consist of independent directors.

Tesla reports after the closing bell in New York on Wednesday. Facebook owner Meta Platforms also reports.

In Tokyo on Wednesday, the Nikkei 225 rose 0.9%. In China, the Shanghai Composite ended down 0.6%. The Hang Seng Index in Hong Kong was 1.0% lower in late trade. Sydney's S&P/ASX 200 added 0.2%.

Brent was quoted at USD109.80 a barrel early Wednesday, jumping from USD106.65 at the time of the London equities close on Tuesday. Gold was quoted at USD4,120.93 an ounce, down from USD4,131.02.

Oil companies were among the best FTSE 100 performers. BP rose 1.8%, while Shell climbed 0.4%.

The UK government has approved plans to begin drilling in the Jackdaw gas field in the North Sea.

The decision by the North Sea Transition Authority ends months of speculation about the future of the project, which owner Adura said could deliver around 6% of UK North Sea gas production. Adura is co-owned by Shell and Equinor.

Energy Secretary Miatta Fahnbulleh, who gave approval for the NSTA to grant consent for drilling, said the move will "support the country's energy security with homegrown gas this winter". Prime Minister Andy Burnham added the decision will "protect hundreds of jobs and help keep millions of homes warm", but stressed it would not hinder the government's targets on renewable energy.

The drilling project is one of two – alongside the Rosebank oil field off Shetland – which were approved by the previous Conservative government. But this was overturned by the Scottish courts after a challenge from environmental campaigners. This came after a UK Supreme Court ruling that developers had to account for the climate impact caused by burning fossil fuels in their planning applications.

A decision on Rosebank, the largest untapped oil field in the North Sea, is being made separately, with Fahnbulleh saying it will take "a bit longer".

Adura owns 80% of Rosebank, with Ithaca Energy holding the remainder. Ithaca was up 3.8% in London.

Motoring and cycling products company Halfords lost 7.9%. It maintained annual guidance, and said like-for-like sales in the first half to October 2 rose 7.1% on-year.

It still sees underlying pretax profit between £55 million and £65 million for the full-year.

"The strong H1 performance combined with accelerated investments in marketing and technology in H2 will result in underlying profit before tax being weighted towards H1," Halfords said.

Defence and engineering firm MS International surged 10%.

It has been picked to supply 12 MSI-DS DS30M naval gun systems for the German Navy's F128 frigate programme. The deal is worth £29.7 million.

"The F128 programme is currently one of Europe's most significant naval acquisition programmes and is intended to enhance the German Navy's anti-submarine warfare and maritime security capabilities. Delivery of the systems is expected to take place in accordance with the programme schedule over the coming years," MS International said.

Ashtead Technology shares rose 15% as it agreed to a £505 million takeover by private equity firm Ember Infrastructure Management.

Ember will pay 615 pence in cash per share, an 81% premium to the subsea technology provider's share price on September 22, the day prior to it announcing it received an M&A approach.

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