By Sruthi Shankar and Johann M Cherian
(Reuters) - London stocks fell on Wednesday, with the FTSE 100 index snapping a three-day winning streak after data showed British consumer price inflation jumped to 10.1% in July, raising bets about more aggressive interest rate hikes by the Bank of England.
The blue-chip index ended 0.3% lower, dragged down by declines in insurers and bank stocks.
Persimmon (LON:PSN) slid 7.8% after the housebuilder posted a fall in half-yearly profit.
Official figures showed consumer price inflation jumped to a higher-than-expected 10.1% in July, its highest since February 1982, and up from an annual rate of 9.4% in June as surging food costs intensified a squeeze on household budgets.
The data fuelled bets by investors that the Bank of England will keep on hiking interest rates quickly, with markets now pricing in an 85% chance of a half percentage-point rate interest hike in September.
"We now see risks tilted to an even more front-loaded and protracted hiking cycle with inflation expectations increasingly at risk of destabilising further in the coming months," Sanjay Raja, senior economist at Deutsche Bank (ETR:DBKGn) wrote in a note.
"We see the peak in inflation delayed to next year with inflation likely to remain in double digits at least until late Q2-2023."
(Graphic: UK inflation rate hits double digits, https://graphics.reuters.com/BRITAIN-ECONOMY/INFLATION/lgpdwyqkjvo/chart_eikon.jpg)
Still, the FTSE 100 has gained nearly 1.8%, outperforming Europe's STOXX 600 and U.S. S&P 500 index, due to its exposure to commodity-linked stocks and global firms.
"We remain constructive on the UK market in a backdrop of high commodity prices, while many large-cap value and defensive names can perform well in the current macro environment," said Hussain Mehdi, investment strategist at HSBC (LON:HSBA) Asset Management.
The domestically focused FTSE 250 midcap index closed 1.5% lower, easing off two-month highs.
Infrastructure firm Balfour Beatty (LON:BALF) jumped 10.5% after posting a 42% rise in underlying operating profit in the first half and announcing a hike in dividend.
Cineworld plunged 60.4% to a record low after the world's second-largest cinema chain warned that admission levels at its theatres are likely to stay lower than expected until November due to limited film releases.