London’s FTSE 100 and FTSE 250 indices both fell on 22 June when the Bank of England raised interest rates by half a percentage point in response to inflation holding firm at 8.7%, as investors worried about the impact of further rate hikes on the UK economy.

The central bank’s decision to raise rates from 4.5% to 5% marked its thirteenth consecutive hike since December 2021 and could exert downward pressure on house prices at a time when many mortgage holders are already struggling to pay the bills due to the cost-of-living crisis.

Interest rate-sensitive stocks including banks and housebuilders dipped, the latter cohort on concerns higher rates will cause mortgage market chaos and crimp demand for homes, while sterling and gilt yields seesawed as traders priced in a peak to UK rates of as much as 6% and its implications for recession risk.

Rising mortgage rates, coupled with continuing price rises in goods and services, could act as a sharp brake on the UK economy.

The latest rate hike doesn’t bode particularly well for consumer confidence in the second half of the year, at which point retailers may really start to feel the squeeze.

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