The FTSE 100 fell 2.6% to 7,081.1 in early afternoon trading on Thursday following the Bank of England’s decision to hike interest rates 0.25% to 1.25% at its meeting today, and a revised inflation estimate of 11% in Q4 2022.
European markets dropped a day after the ECB’s emergency meeting, with the German DAX dropping 2.5% to 13,137.3, the French CAC down 1.7% to 5,921.9 and the Italian FTSE MIB sliding 2.3% to 21,935.8.
Despite staging a rally last night, US stocks resumed their declines on Thursday as the US Federal Reserve’s long-predicted 0.75% rates hike to between 1.5% and 1.7% ignited fears of a recession in the US.
The prospect of further interest rate hikes both in the UK and US to help fight inflation comes just as economic indicators start to show signs of weakness.
The Bank of England held back from the sharper rise seen in the US after already moved rates higher at prior meetings, and in an effort to avoid the risk of plunging the economy into recession.
‘’Inflation risks being a slow poison for the economy, so the Bank of England is trying to take an antidote now by raising interest rates. However, it can only take a small dose at a time given the ailing nature of the economy. So, it’s stuck with a 0.25% rate increase to 1.25%, with more hikes to follow,” said Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown.
“It’s not following the prescription written by the US Federal Reserve of the more potent medicine of a steeper hike due to fears a deep recession could follow.”
Housebuilders fall
Housing stocks took a nosedive as higher interest rates finally looked set to clamp their jaws around the gravity-defying housing market.
“Higher interest rates should also eventually serve to cool the housing market, as the impact gradually feeds through into mortgage affordability,” said Mould.
Taylor Wimpey shares dipped 3.8% to 122.5p, Berkeley Group holdings dropped by 4.1% to 3,964p, Barratt Developments slid 2.8% to 485.6p and Persimmon plummeted to a sharp fall 10% to 1,974.5p.
The trading session was also unkind to retail stocks, as the interest rates hike combined with higher inflation projections sent fashion shares tumbling, with JD Sports Fashion decreasing 7.4% to 103.1p and Next sliding 5.4% to 5,716p.
Halma shares fell 4.8% to 1,894p despite record revenue of £1.5 billion and record profits of £304 million in FY 2022.
However, the company might have suffered a blow on the back news that CEO Andrew Williams had resigned from the position after 18 years, with CFO Marc Ronchetti set to replace him from 1 April 2023.
“Marc is an outstanding leader and I look forward to working with him to ensure a smooth handover,” said Williams.
Ronchetti added: “I am delighted to have been selected as Halma’s next Group Chief Executive. I am excited by the opportunity to lead such a fantastic and talented team, and to continue Halma’s long track record of creating value through our Sustainable Growth Model.”
Meanwhile, the price of oil continued to fall as a result of higher US Fed rates, with the benchmark Brent Crude at $117 per barrel.
Oil giants felt the cold blast of the rates hikes, as Shell shares dropped 4.8% to 2,162.2p and BP shares slid 4.5% to 407.8p.