Stocks in London closed significantly down on Thursday after the Bank of England hiked interest rates by 50 basis points, surprising investors after initial expectations of a 25 basis points hike.
‘The UK economy is verging on a doom spiral and this latest super-sized interest rate hike is only adding to it,’ lamented Laura Suter, head of personal finance at AJ Bell.
The FTSE 250 ended down 243.48 points, or 1.3%, at 18,327.97. The AIM All-Share closed down 8.58 points, or 1.1%, at 774.04.
The Cboe UK 100 ended down 0.9% at 747.56, the Cboe UK 250 closed down 1.4% at 16,065.29, and the Cboe Small Companies ended down 0.9% at 13,065.23.
Thursday’s hike took the UK’s benchmark bank rate to 5.00% from 4.50% previously and came as somewhat of a surprise to markets.
A 25 basis point hike had been largely expected. However, following Wednesday’s red-hot consumer price index data, bets on a half-point hike had increased, with the expectation that a more aggressive move may better tame the UK’s stubborn annual inflation rate.
The vote to hike by 50 basis points was opposed by two policymakers, Swati Dhingra and Silvana Tenreyro, who would have preferred to leave the bank rate unchanged. The BoE said the remaining seven voted in favour of the hike.
The BoE has now hiked for 13 meetings in succession.
‘We know this is hard – many people with mortgages or loans will be understandably worried about what this means for them,’ said BoE Governor Andrew Bailey, ‘but if we don’t raise rates now, it could be worse later.’
The pound was quoted at $1.2741 at the London equities close on Thursday, up from $1.2727 at the close on Wednesday.
However, sterling spiked in the immediate wake of the decision, rising as high as $1.2830, up from $1.2781 beforehand. Therefore, the pound has now surrendered all of its post-decision gains and ends below where it was prior to the hike.
Analysts at ING suggested that sterling’s drop back was a result of the view that the BoE is ‘ready to engineer a harder slow-down’ to get inflation under control.
‘It’s clear that until we begin to see some improvement in the official inflation statistics, the committee won’t be content with pausing. We’re tempted to say that today’s 50 [basis point] move won’t become a new trend, but two further 25 [basis point] hikes seem like the most likely route after today’s meeting,’ the analysts said.
In London, Ocado was the top blue-chip performer at the close on Thursday, surging 32% amid rumours that it could be a takeover target for online retailer Amazon.com.
Reuters reported that online retailer Amazon.com declined to comment on whether a takeover of online grocer and warehouse technology firm Ocado was on the cards.
The Reuters report follows a Times newspaper report that highlighted ‘talk’ that US tech companies such as Amazon were considering an offer for Ocado, given its low price.
Orwa Mohamad, an analyst at Third Bridge, said that Amazon and Ocado appear ‘somewhat of a natural fit’ from a fulfilment point of view.
‘One thing Amazon suffered from in the US with Whole Foods acquisition is integrating the supply chain. With Ocado, they don’t have to do everything from scratch as it’s a modern and compatible supply chain and fulfilment process,’ he said.
Amazon was trading 3.7% higher in New York at the time of the London equities close.
Elsewhere in London, Speedy Hire jumped 8.4% despite reporting that its yearly profits had collapsed following a significant asset write-off.
The tools and equipment hire services company said that its pretax profit for the year ended March 31 plummeted by 94% to £1.8 million from £29.1 million following an asset write-off.
The company undertook a comprehensive count of all hire equipment in the year and discovered a shortfall in quantity of non-itemised assets of £20.4 million, writing that off and hurting profit.
This was compounded by an operational efficiency review, resulting in restructuring costs and a net depot reduction of £6.7 million.
Next year, Speedy Hire said it will launch its new strategy called ‘Velocity’, designed to accelerate sustainable profitable growth by focussing on measurable medium and long-term growth and performance objectives.
In European equities on Thursday, the CAC 40 in Paris ended down 0.9%, while the DAX 40 in Frankfurt ended down 0.3%.
Stocks in New York were mixed at the London equities close, with the Dow Jones Industrial Average down 0.1%, the S&P 500 index flat, and the Nasdaq Composite ended up 0.4%.
A senior US Federal Reserve official reaffirmed on Thursday that additional interest rate hikes are needed to tackle historically high inflation in the US.
‘I believe that additional policy rate increases will be necessary to bring inflation down to our target over time,’ Fed governor Michelle Bowman told a conference in Cleveland, Ohio, according to prepared remarks.
The Fed paused its campaign of monetary tightening last week, after raising its benchmark lending rate 10 times in a row to tackle inflation which remains stubbornly above its long-term target of 2%.
The Fed’s benchmark now sits in a range between 5.0% and 5.25% – its highest level since 2007.
The euro stood at $1.0953 at the European equities close on Thursday, up a touch from $1.0949 at the same time on Wednesday.
Meanwhile, against the yen, the dollar was trading at JP¥142.86, sharply higher compared to JP¥142.00 late Wednesday.
Chris Turner at ING said the ‘only place’ where a ‘strong dollar story’ is playing out is against the yen, where a ‘resolutely dovish’ Bank of Japan means that ‘USDJPY will be at the forefront of any dollar rally on the back of strong US data’.
Brent oil was quoted at $74.22 a barrel at the London equities close on Thursday, down from $76.92 late Wednesday. Gold was quoted at $1,913.60 an ounce, sharply lower against $1,930.37 at the close on Wednesday.
In Friday’s UK corporate calendar, there are full-year results from retail sales and volume monitoring systems provider Vianet.
The economic calendar has a slew of flash PMI prints from the EU, UK and US from 0900 BST. There are also UK retail sales at 0700 BST.
Financial markets in China will remain closed on Friday for the Dragon Boat Festival holiday.
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