Investors are also still reeling from Jerome Powell's comments, who said yesterday that "nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year." The FTSE 100 fell 0.1%.

The pound sterling was on a rollercoaster ride on Wednesday, initially surging after the publication of data showing that UK inflation had accelerated more than expected in May, then reversing its gains as concerns arose over the Bank of England's ability to protect the economy from stagnation. It was up 0.1% against the dollar to USD 1.281, having reached USD 1.2803 just after the data was published.

Consumer prices rose by 8.7% year-on-year in May, unchanged from April's rate of 8.7%, but above expectations of an 8.4% increase. The core rate, which excludes food, energy, alcohol and tobacco, rose by 7.1%, whereas economists were expecting 6.8%. The BoE thus remains under pressure to proceed with a sharp rate hike at its meeting today.

"If you look at it in context, with the labor market and average wages rising 7.2% in April when core CPI was 6.8%, you've now got core CPI at 7.1% - you're likely to see wages rise again and that's where you start to get those second and third round effects and it really gets into the economy," said Michael Brown, strategist at TraderX.

Yields on two-year gilts, the most sensitive to changes in interest rate and inflation expectations, rose above 5% for the first time in at least 15 years this week, reviving memories of the market crisis triggered in September by former Prime Minister Liz Truss's borrowing plans.

The BoE was widely expected to raise interest rates by 25 basis points to 4.75% today, but after the inflation data, money markets showed that traders were placing nearly 50% odds on a half-point hike.

The FTSE 100 fell 1% at the open this morning, weighed down by healthcare stocks, miners and bank.

Things to read today:

How high will UK interest rates go? (Financial Times)

Sunak Struggles to Contain Tory Anxiety over UK Mortgages (Bloomberg)