Stocks in London tumbled on Thursday as hot-on-the-heels of the US Federal Reserve, the Bank of England also lifted rates again in a bid to tame red-hot inflation.
The BoE resisted the urge to hike at the same pace as the Fed, opting for 50 basis points instead of 75. Threadneedle Street was downbeat on the UK's economic prospects, predicting a third-quarter recession.
The FTSE 100 index closed down 78.12 points, 1.1%, at 7,159.52. The FTSE 250 ended down 382.98 points, 2.1%, at 18,331.69, and the AIM All-Share closed down 7.92 points, 0.9%, at 847.42.
The Cboe UK 100 ended down 1.2% at 714.25, the Cboe UK 250 closed down 2.0% at 15,703.59, and the Cboe Small Companies ended down 0.6% at 13,275.33.
In European equities on Thursday, the CAC 40 in Paris lost 1.9% and the DAX 40 in Frankfurt ended down 1.8%.
Stocks in New York were lower at the London equities close, with the Dow Jones Industrial Average down 0.4%, the S&P 500 index down 0.9%, and the Nasdaq Composite 1.5% lower.
The Bank of England raised UK interest rates by half a percentage point to 2.25%.
Three members of the Monetary Policy Committee voted in the minority to raise the key bank rate by a more-aggressive three-quarters of a percentage point, however. One member backed a smaller 25 basis point hike.
The BoE explained that it expects peak consumer price index inflation to be lower than previously thought at just under 11%, due to the UK government's recently announced energy price measures.
In a worrying forecast, however, the bank expects the UK to enter into recession as early as the third quarter. It now expects a third-quarter gross domestic product to fall by 0.1%. It had previously anticipated 0.4% growth.
A third-quarter GDP fall would represent a second successive quarterly decline, meeting the definition of a recession. Two consecutive quarters of falling gross domestic product meets a long-held view of what defines a recession. The UK economy contracted by 0.1% in the second quarter of 2022.
The pound traded below the $1.13 mark.
The pound was quoted at $1.1257 at the London equities close Thursday, down from $1.1336 on Wednesday. The euro stood at $0.9827, down against $0.9879.
The yen gained ground against the greenback, however. The Japanese government intervened in the currency market. The yen has plummeted against the dollar in light of the widening policy gap between US and Japanese central banks.
The dollar had been seen as high as nearly JP¥146, after the Federal Reserve announced a 75 basis interest rate hike on Wednesday. In contrast, the Bank of Japan had left its ultra-loose monetary policy in place.
Against the yen, the dollar was trading at JP¥142.17 late Thursday, down from JP¥144.13 late Wednesday.
With the period of mourning Queen Elizabeth II over, the UK government has begun unveiling new policies that give clues as to the direction new Prime Minister Liz Truss will pursue.
Ahead of his mini-budget on Friday, Chancellor Kwasi Kwarteng said the UK national insurance hike introduced by Boris Johnson's government will be reversed from November 6.
Kwarteng confirmed that he was cancelling the 1.25 percentage point increase imposed by Rishi Sunak when he was chancellor to pay for social care and dealing with the NHS backlog. He would also be scrapping the planned health & social care levy, which was due to come into effect next April to replace the national insurance rise.
Earlier in the day, Business & Energy Secretary Jacob Rees-Mogg lifted England's ban on fracking. He said the impact of Vladimir Putin's invasion of Ukraine means securing domestic energy supplies is vital. He defended lifting the moratorium on fracking, which has been in place since 2019 after a series of tremors caused by the process.
Rees-Mogg suggested limits on acceptable levels of seismic activity are too restrictive and said the government is determined to ‘realise any potential sources of domestic gas’.
AIM-listed oil & gas firm IGas Energy said it welcomed the decision. Its shares surged 10%.
Brent oil was quoted at $90.24 a barrel at the London equities close Thursday, down from $90.82 late Wednesday. Gold was quoted at $1,669.31 an ounce, up against $1,667.36.
In the FTSE 100, JD Sports was the worst performer, shedding 8.4%. The sportswear retailer reported a rise in interim revenue but a drop in profit.
In the six months to July 30, pretax profit dropped to £298.3 million from £364.6 million. JD Sports explained this was due to the previous year experiencing a one-off benefit in the US from government stimulus.
Revenue rose by 14% to £4.42 billion from £3.89 billion a year previous.
JD Sports Chair Andrew Higginson said the results were at the ‘top end’ of the company's expectations, touting the firm's ‘strength’ of consumer engagement. However, Higginson remained ‘cautious’ about second half trading, citing macro-economic uncertainty, inflationary pressures as well as supply chain disruption due to the threat of industrial action in many markets.
Playtech dropped 9.7% after posting a significant decrease in interim profit.
The Isle of Man-based gambling software developer said pretax profit had dropped 63% to €103.7 million in the six months to June 30 from €278.1 million a year before.
This fall was mainly due to the €299.9 million of unrealised fair value gains on financial assets recognised in the prior period, Playtech said.
Playtech's revenue, however, increased by 73% to €792.3 million from €457.4 million. This increase was driven by strong growth within regulated business-to-business markets and Snaitech, Playtech's Italian business.
On AIM, Biome Technologies tumbled 51%. The bioplastics and radio frequency technology firm warned revenue for 2022 and 2023 will now be ‘substantially below current market expectations’ due to supply chain problems and concerns over consumer demand.
Biome said it is taking a ‘very cautious approach’ and said that further delays and a scaling back of volumes are inevitable in the shorter term.
In Friday's UK corporate calendar, there will be full year results from engineering company Smiths Group, as well as trading statements from waste management firm Biffa and financial services firm Investec.
The economic calendar for has UK consumer confidence figures overnight, as well as a slew of flash PMI figures from Australia, the EU, France, Germany, the UK and the US.
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