Europe midday: Losses widen as BoE hikes UK interest rates

by | Feb 3, 2022

European shares extended losses at midday as the bank of England lifted interest rates and US markets were set to open sharply lower.

The pan-European Stoxx 600 index was down 0.6% with all major regional bourses following suit. Britain’s FTSE 100 outperformed was down 0.06%. US futures indicated a sharp fall for stocks on the tech-heavy Nasdaq after a sharp fall in value for Facebook owner Meta overnight.

In London, the Bank of England was lifted its key rate by 25 basis points to 0.5% – the threshold at which it has said previously it would begin to unwind its £895bn quantitative easing programme.

The widely-expected 0.25 percentage point hike follows December’s decision to increase rates to 0.25% from a record low of 0.1%. It is the first time since 2004 that the central bank has opted to lift interest rates at two consecutive Monetary Policy Committee meetings.

The committee voted for the rise by a majority of 5-4.

The BoE is trying to tackle growing price pressures which have seen inflation hit a near-30-year of 5.4%, well above its 2% target, while ensuring the economy continues to grow post pandemic.

Meanwhile investors were also eyeing the outcome of a European Central Bank. No major policy changes are expected, but investors will be looking for any sign that bank president Christine Lagarde will stop stimulus measures in response to the inflation surge that many central bankers dismissed as temporary.

On the equity news front, shares in UK telecoms and broadcasting company BT Group fell as it said it was in talks with Discovery of the US about forming a sport broadcasting joint venture and reported a 3% drop in profit for the first nine months of the year.

Shares in UK government contractor Compass surged as it reported revenue growth of 38.6% in the first quarter, with sales reaching 97% of their pre-Covid levels.

Shell shares edged higher after the energy giant reported soaring fourth-quarter profit on the back of surging oil and gas prices.

Nordea shares fell, despite the Nordic region’s biggest lender posting better-than-expected fourth quarter profit and lifting its return-on-equity target to more than 13%.

Shares in Swedish ball bearing maker SKF fell more than 6% as it reported higher-than-expected fourth-quarter net profit but cautioned that it expects supply-chain constraints and higher costs to continue.

UK publisher Future slumped more than 7% despite an upbeat trading statement and reaffirmed annual guidance.

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