Inflation at 3.5% broke London's refuge trade: the FTSE 100's week

UK consumer prices rose 3.5% in the year to September, the Office for National Statistics reported on Wednesday — up from 3.1% in August, above the 3.4% economists had expected, and the highest reading since October 2025. That single print shaped London's week more than any company result did, because it removed the one thing the FTSE 100 had been leaning on through a month of imported volatility: the prospect that the Bank of England would soon be cutting.

The result was the index's first weekly decline in three weeks. Having closed the previous Friday at 10,881.90 — a 3.13% weekly gain, its best in six months — the FTSE 100 gave ground in every session, trading around 10,665 late on Friday afternoon, roughly 2% below where it began. The mid-cap FTSE 250 fared worse, heading for its sharpest weekly fall in nearly six weeks after a 0.9% drop on Thursday that was its worst session since 1 October.

What makes the week worth recording is not the size of the fall, which was modest, but what broke. For a fortnight London had been the refuge trade: light exposure to AI-linked names let pharmaceuticals, tobacco and consumer staples do the work while Wall Street and Seoul convulsed. This week that shelter stopped working at the same moment a domestic squeeze arrived — hotter inflation, oil above $114, a retail sales miss and the steepest fall in consumer confidence since the pandemic — five days before the Budget.

How the week unfolded

The sentiment we logged across the five sessions tells the story in order: Cautious on Monday, Mixed on Tuesday, Cautious again on Wednesday, Mixed on Thursday, Risk-off on Friday. There was no Risk-on day, and the week ended at its lowest ebb — the inverse of the pattern of the preceding fortnight.

Monday opened into the aftermath of Wall Street's worst week since June, the Nasdaq Composite having fallen 2.15% on the Friday as doubts deepened over how the AI capital-spending boom is being financed. We flagged two data points as the week's real tests, both read as Budget inputs: unemployment on Tuesday and inflation on Wednesday, with ten-year gilt yields already pushing up through 5.25%. Banks and miners dragged the index lower that session, and Tuesday added a further 0.3% fall.

Wednesday was the turn. The inflation release we had flagged as “expected to show a third consecutive monthly rise” came in hotter than consensus allowed, at 3.5% against 3.4%; core inflation held at 2.8%, as forecast. Published alongside it were public sector net borrowing figures of £24.52bn for September, up from £18.27bn a year earlier. Oil compounded the problem, Brent jumping to around $110 a barrel in early European trade from Tuesday's $106.65 close as Strait of Hormuz supply risk resurfaced. Yet the FTSE 100 still finished Wednesday marginally higher as defensives absorbed the blow. It was the last session in which the refuge trade worked.

From there it unravelled. Thursday brought a second successive bout of AI-driven selling, the Nasdaq falling 2.6% in its worst day since June after Meta dropped around 7% on the scale of its planned capital spending, and London followed Asia down to a one-week low. By Friday morning, with Brent at a five-month high above $114, the ONS delivered the last catalyst we had flagged — September retail sales — and it missed: volumes fell 0.4% on the month against expectations of a 0.1% decline, with August revised up to a 0.7% rise. Quarterly growth of 0.7% was led by motor fuel, while supermarket and mail-order sales both fell and unseasonably warm weather hit autumn clothing. A consumer confidence survey published the same morning recorded its steepest monthly drop since the early days of the pandemic.

On the rates question that framed the whole week, the position has inverted. The Bank held Bank Rate at 3.75% in September on a 6-3 vote in which the three dissenters wanted a quarter-point rise, not a cut. After Wednesday's print, a November increase is now largely priced in. The next decision falls on 5 November.

The names that moved it

Barclays defined the week, and not in the way it would have wanted. Third-quarter results on Thursday showed pre-tax profit up 12% at £2.3bn, but the investment bank undershot: income of £3.1bn against the £3.3bn the market expected, with fixed income down 19% at £1bn. Chief executive C.S. Venkatakrishnan said he was “disappointed”. Alongside the numbers came confirmation that the bank is cutting roughly 5,000 jobs, about 5% of its workforce, in an AI-powered cost-cutting drive; finance chief Anna Cross said 1,000 had already gone, with the remainder due by the end of the year and around 60% falling on support functions such as technology and operations. A further £500m share buyback did not offset it. The shares fell about 2.3%, the single biggest drag on the index on Thursday.

Anglo American was the week's other repeat name, and for two days the counterweight. Its third-quarter production report on Tuesday showed copper output down at 174,900 tonnes from 183,500 tonnes a year earlier, but full-year copper guidance was held at 700,000 to 760,000 tonnes, and the diamond line was the surprise: full-year carat guidance raised to 25-28 million from 21-26 million after De Beers took full ownership of the Gahcho Kué mine on 16 October. The shares rose around 2% to roughly 3,966p, bucking a weaker open. By Thursday that had reversed hard, with Anglo down 5.5%, Antofagasta 6.5% and Rio Tinto 3.4% as precious metal producers fell 5.2% and spot gold dropped 2.2%.

InterContinental Hotels Group reported the same morning as Barclays and delivered the cleaner set. Third-quarter global RevPAR rose 5.3%, with the Americas up 6.8% and EMEAA up 5.0%, offset by Greater China down 3.3% — attributed to adverse weather and holiday timing that sent Chinese travellers abroad — and a 12% decline across the GCC countries. Net system growth ran at 4.9%, with 12,900 rooms opened in the quarter, and the group said it remains confident of meeting consensus expectations for 2026.

Two further names we flagged resolved cleanly in opposite directions. Tristel, which opened the week with full-year results, cleared the bar its July update had set: revenue up 10% at £51.1m and adjusted pre-tax profit up 15% at £11.7m against guidance of at least £11.5m, with £16m of cash and no debt. Bunzl went the other way, falling despite a rise in third-quarter revenue and a reiterated full-year outlook. Among the mid-caps, Genuit slumped after warning that full-year underlying operating profit would land near £84m against the £91m to £96m the market had pencilled in — a reminder that the FTSE 250's weakness this week was not purely imported. The full week's movers are listed on our screener.

What to watch next week

The Budget on Wednesday 28 October is the fixed point, and it has shaped every session we have covered this month. Gilt yields and the reported possibility of a levy on the banks are the two threads carrying into it from the week just gone.

The Bank of England's next rate decision follows on 5 November, its first since September's 6-3 hold. The ONS publishes its next retail sales bulletin on 20 November.