European stocks pared losses but were still lower on Thursday as investors digested the third straight 0.75 point rise by the US Federal Reserve and a 0.5% rise by the Bank of England.
The pan-European Stoxx 600 was down 1.15% in early deals, with all major regional bourses lower.
Policymakers have signalled that more pain is to come in an effort to combat soaring inflation – something they had dismissed a year ago as transitory in the wake of the Covid pandemic.
Traders and investors alike fear that aggressive tightening could tip the global economy into recession.
The Bank of England raised UK interest rates by 0.5 percentage points to 2.25% in an attempt to combat soaring inflation amid the cost-of-living crisis – its seventh increase in a row as domestic inflation hovered at 10%.
However, the bank’s monetary policy committee was heavily split on the size of the increase. Five members – including governor Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, and Silvana Tenreyro – voted to lift rates by half a percent, to 2.25%
Three others – Jonathan Haskel, Catherine L Mann and Dave Ramsden – pushed for a larger 75 basis point hike. The MPC’s newest member, Swati Dhingra, voted to only raise rates by 0.25%.
UK consumer price inflation eased to 9.9% in August from 10.1% in July and the BoE said on Thursday that given the Energy Price Guarantee announced earlier this month, the peak in measured CPI is now expected to be just under 11% in October, down from a previous forecast of 13%.
“Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back,” the Bank said.
In equity news, banks led the charge as interest rates continued to rise with UniCredit, Banco de Sabadell, Deutsche Bank, Raiffiessen Bank and CaixaBank all higher.
Polymetal shares fell after the Russian gold producer reported lower first half output, swung to a net loss and cut its dividend.
JD Sports Fashion was also lower after posting lower profits and warning the second half could be hit by inflation and supply-chain constraints.
Shares in Finnish energy supplier Fortum were up after it agreed to dump its entire stake in its heavily loss-making subsidiary Uniper to the German government for €500m. Uniper shares were up again after the state-sponsored bailout.
Reporting by Frank Prenesti at Sharecast.com
