London Equities Hold Firm as Inflation Balances Out and Central Bank Actions Loom

18 June 2025

Jerome Powell the chairman of the Federal Reserve. SHA HANTING/CHINA NEWS SERVICE/VCG/GETTY IMAGES

London’s financial heartbeat pulsed steadily today as the FTSE 100 climbed modestly in response to fresh inflation data and mounting central bank uncertainty. By midday, the index had edged up approximately 0.2 percent to reach 8,855, underpinned by resilience in defense and aerospace stocks, even as rising food and energy prices complicated the outlook.

The latest Office for National Statistics report for May revealed inflation remained flat at 3.4 percent, unchanged from April after revision. The uptick was driven largely by climbing food costs, chocolate and coffee prices surged at their fastest rate in over a year, while the rate of services inflation cooled slightly to 4.7 percent. This nuanced inflation picture keeps policymakers at the Bank of England in a cautious stance, with markets now shifting expectations toward a likely rate hold in today’s meeting, and leaves open the door for a possible cut in August.

Despite the inflationary backdrop, early trading saw lift in shares tied to UK defense and aerospace. Melrose Industries, Babcock, and Rolls‑Royce posted gains as investors eyed potential external threats and government defense rollout tied to geopolitical instability. Scotia’s IAG also rebounded, climbing roughly one percent after several days of losses.

However, this optimism was balanced by sector-specific drag. Healthcare titans GSK and AstraZeneca each shed more than one percent, reacting to worries over possible U.S. pharmaceutical tariffs. Consumer brands Burberry and Dr. Martens also appeared under pressure, weighed down by global uncertainty.

Further reflecting the mixed mood, AO World’s stock dropped around 3.2 percent in spite of announcing a strong 27 percent increase in annual profits and a confident earnings forecast. The share dip may signal investor preference for stability over near-term growth messaging.

The broader European market followed the same cautious tone. The STOXX 600 slipped approximately 0.2 percent, with healthcare firms leading the retreat, while aerospace titan Airbus bucked the trend, advancing three percent after announcing a boosted dividend payout . On currency markets, the pound edged higher against the dollar, reflecting the unexpected resilience in inflation data and moderating the probability of an immediate rate hampering.

Global macroeconomic currents remain troubled. U.S. Fed watchers are absorbing the implications of geopolitical flashpoints in the Middle East, where military tensions risk spilling over into broader markets. Oil prices have hovered near $76 per barrel, keeping energy inflation in the spotlight and complicating central bank decisions on both sides of the Atlantic .

Market analysts underscore that today’s session reflects a tightrope act. With inflation sticky but not runaway, and geopolitical pressure creating uncertainty, central banks are likely to opt for patience. The expectation is for the Bank of England to maintain rates while awaiting clearer signals from both domestic price trends and geopolitical dynamics in the coming months.

As investors await announcements from the Federal Reserve and Bank of England in the next 48 hours, attention is focused squarely on the language of central bank communications. Will they affirm a willingness to cut, or signal continued vigilance against persistent inflation pressures exacerbated by rising commodity costs and global tension?

With equities and currencies striking a delicate balance, sectors tied to defense, energy, and consumer staples will likely remain in investor focus. The healthcare and consumer discretionary segments, meanwhile, may remain volatile amid tariff anxieties and shifting consumer sentiment.

In sum, London markets are demonstrating cautious optimism. Inflation isn’t spiraling, nor is it easing sufficiently to trigger immediate rate cuts. As the FTSE 100 holds steady, investors are preparing for pivotal developments in central bank policy and geopolitical direction, crucibles that may define market momentum in the summer months ahead.