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FTSE climbs higher as eurozone inflation hits 10%

The lobby of the London Stock Exchange. The FTSE was higher on Friday
The FTSE gained 0.7% after opening, heading back towards 7,000 points after a sharp rout this week. Photo: Reuters/Suzanne Plunkett

European stock markets pushed higher on Friday as new data showed that inflation in the eurozone hit a record rate of 10% in September, while the UK economy grew in the second quarter.

In London, the FTSE 100 (^FTSE) gained almost 0.4% by the end of the session, heading back towards 7,000 points after a sharp rout this week. Meanwhile the CAC (^FCHI) rose 1.5% in Paris, and the Frankfurt DAX (^GDAXI) was 1.2% higher.

According to the latest data from Eurostat, price growth in the 19 countries sharing the euro jumped from August’s 9.1% to 10% in September, higher than the 9.7% forecast by economists.

This points to another big interest rate hike from the European Central Bank (ECB) at its next meeting.

Inflation in Germany, Europe's largest economy, jumped from 8.8% to 10.9%, and price growth in Italy hit 9.5%, up from 9.1%, while French inflation slowed to 6.2% from 6.6%.

Read more: Pound wipes gains against dollar after Truss and Kwarteng's OBR meeting

Meanwhile, the unemployment rate in the eurozone was 6.6% in August, stable compared with July and down from 7.5% in August 2021.

“The latest rise in euro area inflation to fresh highs may mark the peak, but that doesn’t make the continent’s situation any less concerning," Seema Shah, chief global strategist at Principal Global Investors, said.

"Indeed, while headline inflation may start to ease as a result of base effects and volatile energy prices, with the unemployment rate itself at a new low, core inflation is building momentum and is likely to rise further in the coming months."

It came as the Office for National Statistics (ONS) reported that gross domestic product (GDP) in the UK increased by 0.2% from April to June, an improvement on the previously forecast decline of 0.1%.

But it added that the economy’s overall size is smaller than previously estimated, 0.2% below its pre-pandemic level.

The UK economy is also estimated to have shrunk by 11% during the first year of the pandemic, rather than 9.3% as previously thought.

“The good news is that the economy is not already in recession. The bad news is that contrary to previous thinking, it still hasn’t returned to pre-pandemic levels. It’s the only G7 economy in that situation and it makes the chancellor’s fiscal plans look even more untenable,” Paul Dales, chief UK economist at Capital Economics, said.

Read more: Why has the pound fallen and what does this mean for you?

“So despite the better news on the performance of the economy in Q2, the overall picture is that the economy is in worse shape than we previously thought. And that’s before the full drag from the surge in inflation and leap in borrowing costs have been felt.”

Meanwhile, Prime minister Liz Truss and chancellor Kwasi Kwarteng met the chairman of the Office for Budget Responsibility (OBR) to discuss the fallout since last Friday's mini-budget.

After the meeting, which lasted less than an hour, the OBR said that its independent forecasts will be ready to be delivered to the chancellor on 7 October, which “will, as always, be based on our independent judgment about economic and fiscal prospects and the impact of the government’s policies”.

However, the UK government is set to publish the forecasts on 23 November, despite calls for them to be revealed earlier.

Watch: Truss and Kwarteng meet with OBR amid market turmoil and party concerns

Across the pond on Wall Street, the S&P 500 (^GSPC) rose 0.8% and the tech-heavy Nasdaq (^IXIC) climbed 1.3% by the time of the European close. The Dow Jones (^DJI) was 0.4% higher.

It came despite jitters in currency and bond markets, which persisted over hawkish talk from central banks, worries about global recession, and rising geopolitical risk.

However, each of the major indices are ending the quarter on a sour note. In the year to date, the Dow Jones is down by 20%, the S&P 500 24% and the Nasdaq 31%.

Richard Hunter, head of markets at Interactive Investor, said: “With volatility and turmoil sweeping across markets due to fears of inflation, recession, currency volatility and escalating geopolitical tensions, there are few signs that the last quarter of the year will be any less challenging for investors.

“The imminent third quarter reporting season will likely show some unpleasant surprises, and individual stocks are likely to be punished for any earnings misses, let alone muted outlook comments.”

Read more: How four days of market chaos has impacted UK household finances

Elsewhere, stocks in Asia suffered their worst month since the onset of the COVID-19 pandemic, recording a near 13% drop during September.

It was the largest decline since March 2020 when COVID threw financial markets into chaos.

In Tokyo, the Nikkei (^N225) fell 1.8% on the day, while the Shanghai Composite (000001.SS) dipped 0.6%. The Hang Seng (^HSI) rose 0.7% in Hong Kong, managing to eke out gains.

Watch: How does inflation affect interest rates?