London stocks closed well below the waterline on Thursday, after the Bank of England hiked rates to 1.25%.
The FTSE 100 ended the session down 3.14% at 7,044.98, while the FTSE 250 was off 3.05% at 18,727.48.
Sterling, meanwhile, was in the green, last rising 0.71% on the dollar to trade at $1.2266, and strengthening 0.38% against the euro to €1.1700.
“After breaking a six-day run of declines yesterday, European markets have resumed normal service to the downside, after the Swiss National Bank unexpectedly hiked rates by 50 basis points, following on from last night’s 75-basis point rate rise by the Federal Reserve, with the Bank of England following up with another 25 basis points,” said CMC Markets chief market analyst Michael Hewson.
“Today’s declines have seen big falls across the board, below the lows this week, with all the major European markets falling to three-month lows, with the DAX and FTSE 100 on course to head towards the levels we saw at the beginning of March in the aftermath of the initial Russian invasion of Ukraine.”
Hewson said Thursday’s weakness was across the board, driven by energy, financials, and consumer discretionary, with disappointing updates from Asos and Boohoo showing that the outlook for fast fashion appeared to be deteriorating even faster.
“Both brands delivered disappointing assessments about their respective businesses, as consumers looked to pare back spending, while the underlying business struggles to maintain margins against a backdrop of rising costs.”
The Bank of England hiked interest rates by 25 basis points on Thursday to 1.25% – the highest level in 13 years – amid surging inflation.
Six members of the Monetary Policy Committee voted for a 25 basis points hike, while three voted for 50 basis points.
Jonathan Haskel, Catherine Mann and Michael Saunders were the hawks, with expectations for a 50-basis point rise growing in recent days.
“The scale, pace and timing of any further increases in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures,” the BoE said.
“The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”
The Bank also said it expected inflation to rise “slightly above” 11% in October, when energy bills increase again.
That was up from a previous forecast of 10% inflation, with Bank staff now expecting GDP to contract by 0.3% in the second quarter, weaker than anticipated at the time of the May report.
Earlier, the Swiss National Bank unexpectedly lifted interest rates for the first time in 15 years.
The Bank lifted its policy rate from -0.75% to -0.25%, where it has been since 2015, marking the first hike by the SNB since September 2007.
“The tighter monetary policy is aimed at preventing inflation from spreading more broadly to goods and services in Switzerland,” the central bank said.
“It cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilise inflation in the range consistent with price stability over the medium term.
“To ensure appropriate monetary conditions, the SNB is also willing to be active in the foreign exchange market as necessary.”
On Wednesday night, the US Federal Reserve increased interest rates by 75 basis points – its biggest hike since 1994.
Meanwhile, the European Central Bank indicated last week that it would lift rates in July in the face of surging inflation.
In economic news, British food prices looked set to surge 15% this summer and would remain high for at least a year, according to a fresh industry report, in a further blow to hard-pressed consumers struggling with the cost-of-living crisis.
The Institute of Grocery Distribution (IGD) said meat, cereals, dairy, fruit and vegetables were likely to be the worst affected as Russia’s war in Ukraine drove up the price of key foodstuffs.
Prices were also being impacted by Brexit, production lockdowns in China and exports on key ingredients such as palm oil from Indonesia and wheat from India.
The IDG estimated that the average monthly spend on groceries for a typical family of four would reach £439 in January next year – up from £396 in the same month in 2022.
“From our research, we are unlikely to see the cost of living pressures easing soon,” said IGD chief economist James Walton.
“This will undoubtedly leave many households – and the businesses serving them – looking to the future with considerable anxiety.
“If average food bills go up 10.9% in a year, a family of four would need to find approximately £516 extra a year.”
Elsewhere, the UK’s financial regulator earlier warned UK lenders to make a greater effort to help borrowers struggling amid the cost-of-living crisis, including offering payment holidays and waiving interest for those most at-risk.
In a letter to more than 3,500 lenders across the industry, the Financial Conduct Authority (FCA) demanded firms respond “flexibly” and support customers beyond just scheduling collections for missed payments.
“Firms should ensure their policies and processes are fit for the current cost of living pressures and are fully prepared with experienced management and staff to cope with the potential increasing numbers of borrowers in financial difficulty,” the FCA said.
On London’s equity markets, Persimmon was down 6.71%, Intermediate Capital Group lost 3.52%, 3i Group was off 3.58%, Ferrexpo slid 5.28%, and Pets at Home was 1.12% weaker, as they all traded without entitlement to the dividend.
Retailers were also under the cosh after disappointing updates from Halfords Group, Boohoo Group and Asos, which tumbled 27.19%, 11.06% and 32.41%, respectively.
Sector peers were weaker as well, with JD Sports Fashion down 7.59%, Next losing 4.53%, Frasers Group off 8.57%, and Currys 5.47% lower.
Shaftesbury slumped 8.08% after it and Capital & Counties agreed the terms of a £3.5bn all-share merger that would create a combined group with a portfolio valued at around £5bn.
“The terms announced today are unattractive and fail to reflect the inherent value of the Shaftesbury estate,” said Mike Fox at Royal London Asset Management – which owns a 3% stake in Shaftesbury.
“It is unclear why it is in the interests of Shaftesbury shareholders to accept them.”
On the upside, car dealership Inchcape was stronger, adding 3.74% after it said full-year pre-tax profit would be ahead of market expectations, as it continued to trade strongly since its first-quarter update at the end of April.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk and Frank Prenesti.
Market Movers
FTSE 100 (UKX) 7,044.98 -3.14%
FTSE 250 (MCX) 18,727.48 -3.05%
techMARK (TASX) 4,159.14 -2.10%
FTSE 100 – Risers
London Stock Exchange Group (LSEG) 7,254.00p 2.34%
SEGRO (SGRO) 975.20p 1.27%
Informa (INF) 517.60p 0.98%
United Utilities Group (UU.) 1,049.00p 0.43%
Coca-Cola HBC AG (CDI) (CCH) 1,768.50p 0.17%
Reckitt Benckiser Group (RKT) 5,972.00p 0.17%
Meggitt (MGGT) 768.60p -0.18%
Severn Trent (SVT) 2,862.00p -0.21%
Tesco (TSCO) 249.70p -0.60%
Vodafone Group (VOD) 125.30p -0.65%
FTSE 100 – Fallers
Persimmon (PSN) 1,932.00p -11.98%
Scottish Mortgage Inv Trust (SMT) 670.60p -8.74%
JD Sports Fashion (JD.) 102.90p -7.59%
Intermediate Capital Group (ICP) 1,359.50p -7.36%
International Consolidated Airlines Group SA (CDI) (IAG) 109.22p -7.20%
RS Group (RS1) 818.00p -7.10%
ITV (ITV) 65.24p -6.83%
Whitbread (WTB) 2,561.00p -6.09%
Ocado Group (OCDO) 787.40p -5.97%
Glencore (GLEN) 464.00p -5.81%
FTSE 250 – Risers
Inchcape (INCH) 707.50p 3.74%
Primary Health Properties (PHP) 140.90p 1.51%
BH Macro Ltd. GBP Shares (BHMG) 4,520.00p 1.46%
Assura (AGR) 68.20p 1.26%
Jlen Environmental Assets Group Limited NPV (JLEN) 122.80p 1.15%
Mediclinic International (MDC) 450.00p 1.12%
Greencoat UK Wind (UKW) 152.20p 0.79%
Centamin (DI) (CEY) 77.72p 0.75%
Polymetal International (POLY) 216.10p 0.70%
Hochschild Mining (HOC) 110.70p 0.64%
FTSE 250 – Fallers
Carnival (CCL) 654.80p -10.08%
Darktrace (DARK) 317.80p -9.90%
TUI AG Reg Shs (DI) (TUI) 143.90p -8.78%
Countryside Partnerships (CSP) 261.40p -8.67%
Oxford Instruments (OXIG) 1,986.00p -8.48%
Hammerson (HMSO) 20.99p -8.26%
Aston Martin Lagonda Global Holdings (AML) 468.70p -8.13%
Shaftesbury (SHB) 535.00p -8.08%
Micro Focus International (MCRO) 343.70p -7.76%
Moonpig Group (MOON) 208.00p -7.47%
