The Bank of England has hiked rates by 50 bps to 2.25%, meeting analyst estimates, but disappointing some hawkish market participants.
In what has been a busy week for central bank action, the FTSE 100 had started the day on the back foot after the Federal Reserve raised US rates by 0.75% to 3.25%.
FTSE 100 recovers
The FTSE 100 had touched lows of 7,158 early on Thursday before recovering to trade 7,207 shortly after the decision to hike UK rates at midday.
Despite the shift in UK rates, the market’s focus will remain on the Federal Reserve and how they plan to raise US rates to help battle inflation.
“While the 75-basis point rise in US rates was largely expected, particularly after US inflation proved stickier than hoped in August, the messaging around the decision helped put markets in a tizz overnight,” says AJ Bell investment director, Russ Mould.
Although the Fed hiked rates by a bumper 0.75%, the main concern in markets was the future trajectory of rates and how much more stress the global economy was set to suffer in the future.
“The risks for financial markets are threefold. First, there remains uncertainty over when the Fed ends this rate hiking cycle. Second, the pace of the increase creates further risk for markets. Third, the economic consequences – which are experienced with a 12 to 18-month lag – will depend on the level and pace of hikes,” said Daniel Casali, Chief Investment Strategist at wealth manager Evelyn Partners.
JD Sports
JD Sports shares were the biggest casualty on the FTSE 100 after the sports retailer’s profits fell and they told investors the board were cautious on costs going through the rest of 2022. Despite revenue jumping, operating profit fell to £332.9m, falling from £396.8m in the same period a year prior.
JD Sports shares were 6.3% weaker at the time of writing.
Miners provided some support for the FTSE 100 as bargain hunters stepped in to pick commodities stocks that have felt the concerns around slowing growth and disruptions to the Chinese economy. Rio Tinto and Anglo American were both 1.3% to the good.
UK Banks
UK banks have welcomed the prospect of higher rates this week and the immediate reaction saw a dip in the UK’s banks, although they remained in positive territory.
Lloyds and Barclays were 0.3% and 0.6% higher at the time of writing, after being higher earlier in the session.