Must read: markets await Fed rate cut and dot plot, UK inflation

GLOBAL MARKETS 

The FTSE 100 has opened largely flat, while the CAC and the DAX are in the green. Centrica (LSE:CNA) is at the top of the UK basket thanks to a broker upgrade from Morgan Stanley while Barratt Redrow (LSE:BTRW) is another gainer on earnings. Fresnillo (LSE:FRES) is at the bottom of the leaderboard on weaker precious metal prices.

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Meanwhile, US President Donald Trump’s second state visit to the UK is very much dominating the headlines. So far, a $42 billion (£31 billion) ‘Tech Prosperity Deal’ has been agreed to boost ties between the two nations around artificial intelligence (AI) and technology. Microsoft Corp (NASDAQ:MSFT) has promised $31 billion in UK investments. 

US futures are pointing to a flat open at lunchtime after Wall Street closed modestly lower on Tuesday with the DJIA leading the declines and the S&P retreating from record highs. The dollar is trading around 2.5 month lows, while gold retreats slightly after hitting another record high on Tuesday.

• Barratt Redrow performance impressive in current climate
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The Federal Reserve is in focus, widely anticipated to cut interest rates for the first time this year, a day after Trump’s attempt to fire Fed governor Lisa Cook was blocked by an appeals court. While the rate cut is already priced in, focus will be on the dot plot for guidance around where rates might go next. Barclays is projecting the Fed will signal three rate cuts by year-end.

UK INFLATION 

UK CPI inflation hit 3.8% in the 12 months to August, unchanged from July, but stuck at the highest level since January 2024 when the rate was 4%. On a monthly basis, CPI rose by 0.3% in August. Core CPI (excluding energy, food, alcohol and tobacco) rose by 3.6% in the 12 months to August, down from 3.8% in July. CPI for goods rose slightly from 2.7% to 2.8%, while CPI services slowed from 5% to 4.7%. 

There were pushes and pulls on the inflation figure. The Office for National Statistics (ONS) said air fares made the largest downward contribution to the monthly change while restaurants and hotels, and motor fuels made offsetting upward contributions. Food prices continue to rise with vegetables, milk, cheese, eggs and fish all going up whereas prices for bread, cereals, oil and fats declined.

The inflation rate is particularly high in education (7.5%), alcohol and tobacco (5.9%), food and drinks (5.1%), and housing and household services (7.4%). 

The ONS said the UK’s inflation rate has been above French and German rates in each of the eight months of 2025. 

In light of today’s data, it still looks like the Bank of England is on track to keep interest rates unchanged at tomorrow’s decision meeting. While inflation is clearly stuck significantly higher than target, there was nothing too surprising in this inflation report – CPI was in line with forecasts, and consequently there wasn’t much of a reaction from sterling. 

Inflation is likely to push higher in next month’s reading before starting to pull back. Elevated inflation makes it harder for the central bank to continue on its monetary loosening path, raising the likelihood of a higher-for-longer interest rate environment, which could have negative effects on borrowing and the housing market.