The London Stock Exchange Group offices are seen in the City of London, Britain, December 29, 2017. Photographer Toby Melville/File Photo
By Reuters
UK’s main stock indexes extended declines on Thursday after a massive rate hike by the Bank of England (BoE) to tackle stubborn inflation added to worries of a slowing British economy.
The exporter-heavy FTSE 100 (.FTSE) was down 1.2% at 1107 GMT, touching a three-week low, pressured by a spike in the sterling .
The FTSE 250 (.FTMC) mid-cap index lost 0.9%.
Homebuilders real-estate (.FTUB3510) and banks were among the worst hit sectors, down about 2% each.
The BoE raised rates by a bigger-than-expected 50 basis points (bps) to 5% from 4.5%, the highest since 2008. Traders have now priced in the possibility of the bank rate peaking at 6.05% in February, up from 5.9% seen before the decision.
“The BoE has come down on the side of a 50 bps hike, in a move that seems to set the tone for the next few meetings,” said Chris Beauchamp, chief market analyst at IG Group.
“A nod to ‘persistent inflation’ should put everyone on notice that Bailey and co have overcome their reticence about more aggressive hiking.”
Markets started speculating a 50 bps hike following still-high inflation data on Wednesday.
The FTSE 100 has been muted this year, lagging a 6.5% and 14% gain in Europe’s STOXX 600 and Wall Street’s S&P 500 on volatile commodity prices and a hawkish BoE.
The BoE’s decision arrives on a day when other major central banks, including those in Norway and Switzerland, also raised rates.
Meanwhile, markets will also focus on the second day of U.S. Federal Reserve Chair Jerome Powell’s congressional testimony.
Ocado jumped 33.0% to top the FTSE 100 after The Times newspaper reported speculation of possible bid interest in the online supermarket and technology group, including that from tech heavyweight Amazon.