Archived article
Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Shares in London were largely weaker though the pound was on the up, in the aftermath of rate hikes from the Bank of England and US Federal Reserve.
Both central banks lifted rates by 25 basis points. Some expect the BoE’s hike on Thursday to be its last of the current rate-raising cycle.
Elsewhere, shares in Asia-focused lenders HSBC and Standard Chartered struggled. A swing to annual profit lifted Energean shares.
The FTSE 100 index closed down 67.24 points, 0.9%, at 7,499.60. The FTSE 250 ended down 27.83 points, 0.2%, at 18,729.96, but the AIM All-Share closed 3.29 points higher, or 0.4%, at 807.44.
The Cboe UK 100 ended down 0.9% at 750.36, the Cboe UK 250 fell 0.1% at 16,302.08, and the Cboe Small Companies rose 0.1% at 13,333.76.
In European equities on Thursday, markets were mixed. The CAC 40 in Paris gained 0.2% but the DAX 40 in Frankfurt ended flat.
Stocks in New York soared, recouping most of yesterday’s falls at the time London equities close, with the Dow Jones Industrial Average up 1.1%, the S&P 500 surging 1.3% and the Nasdaq Composite jumping 2.0%.
The Bank of England increased interest rates by 25 basis points to 4.25%, despite the turmoil that has engulfed the banking sector in recent weeks.
The rise, which was in line with market expectations, comes a day after figures showed that the annual rate of inflation climbed to 10.4% in February, from 10.1% in March.
It is the 11th consecutive increase from the bank, which started this rate hike cycle in December 2021.
But the BoE left its options open on whether to raise interest rates any further in future meetings, saying this would depend on the emerging evidence, and that the financial and economic outlook had become more uncertain.
If there were to be evidence of more persistent [price] pressures, then further tightening in monetary policy would be required, the BoE said, echoing guidance it gave at its previous meeting in February.
The BoE said it judged UK banks to be ‘resilient’ and ‘well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates’.
It added it would ‘monitor closely’ any effect market tensions might have on the credit conditions faced by households and businesses.
Seven of the MPC’s nine members voted for the rate increase, arguing that the country’s stronger outlook for gross domestic product and employment could ‘reinforce the persistence of higher costs in consumer prices’.
MPC members Swati Dhingra and Silvana Tenreyro voted against the rise.
The move followed interest rate decisions by the Swiss National Bank this morning, the US Federal Reserve on Wednesday, and the European Central Bank last week.
‘The BoE has kept its options open this month amid financial market turmoil. But assuming the tentatively encouraging trends we’ve seen in price setting and wage growth numbers continue, we’d expect a pause in May,’ analysts at ING commented.
Pantheon Macroeconomics analyst Samuel Tombs said the BoE was ‘downplaying the significance’ of the recent inflation reading.
‘We see a strong case for expecting 4.25% to be the peak for bank rate. A plethora of indicators point to an imminent sharp fall in inflation, and the recent pick-up in the growth rate of the workforce looks likely to endure, supported by government policies and cost of living pressures. In addition, banks likely will raise lending interest rates modestly over the coming months in response to the recent increase in their funding costs,’ Tombs added.
Capital Economics thinks the Bank of England may not yet be finished in its battle with inflation.
‘We continue to forecast that the BoE will hike rates once more in May, to 4.50%, before cutting rates in 2024 further and faster than is currently discounted in the markets,’ analysts at the economics bureau said.
‘It is the data on the persistence of inflation that will determine whether or not rates rise further,’ they suggested.‘And with the banking turmoil likely to accelerate the coming economic weakness, we are becoming a bit more confident in our view that in 2024 rates will be cut to 3.00%. That‘