By Johann M Cherian and Shristi Achar A
(Reuters) – UK’s FTSE 100 recorded its worst day in over two months on Thursday after the Bank of England (BoE) raised interest rates by a widely expected 50 basis points and joined other major central banks in predicting that more rate hikes were likely.
Wall Street indexes and European stocks fell sharply after the Federal Reserve and the European Central Bank hiked rates by similar amounts and signalled that there would be more to come as they battle spiralling inflation. [.N] [.EU]
The BoE’s rate-setting committee voted 6-3 to raise Bank Rate to 3.5% – its highest since 2008 – from 3.0% as it eyed the risk of persistent inflation pressures, even with a looming recession and hopes that inflation might have peaked when it hit a 41-year high in October.
The blue-chip FTSE 100 closed the session down 0.9% with the biggest percentage drop since October 11, while the midcap FTSE 250 slid 0.8%.
“It’s not really the story of rate hikes being materially different in the UK. The perception of where the bank rate gets to is similar to where it was. In that regard, there is no material impact on equities,” said Vivek Paul, UK chief investment strategist at BlackRock Investment Institute.
“The bigger question – are current prices fully reflecting the damage that we’re likely to see on account of there being a recession that is on the horizon.”
The pound dropped 2.0% as the BoE’s announcement revealed a widening split between policy members, darkening the visibility on future rate hikes.
“The vote split was more dovish than expected, but the MPC are still giving themselves flexibility down the line with the door still open for 50bp hikes,” said Shreyas Gopal, analyst at Deutsche Bank Research.
Rate-sensitive banks fell 1.4%, with HSBC down 1.0% after a few Hong Kong-based investors sought support for a resolution at the lender’s 2023 annual meeting to restore its pre-pandemic dividend and spin off assets.
(Reporting by Johann M Cherian and Shristi Achar A in Bengaluru; Editing by Savio D’Souza, Eileen Soreng, Sherry Jacob-Phillips, William Maclean)
