The strong gains made early on Thursday by the FTSE 100 were just as quickly lost later in the day as stocks in New York dropped into the red and the Bank of England offered a gloomy outlook for the UK economy.
Not even a weaker pound and gains for oil major Shell were able to hold the index above the 7,600 mark.
The FTSE 100 index closed up 9.82 points, or 0.1%, at 7,503.27. The blue-chip index trimmed gains considerably in the afternoon, having at one point in the session traded 1.7% higher.
The FTSE 250 ended down 129.52 points, or 0.6%, at 20,089.96, and the AIM All-Share closed down 4.79 points, or 0.5%, at 993.77.
The Cboe UK 100 ended up 0.2% at 747.87, the Cboe UK 250 closed fell 0.9% to 17,729.44, and the Cboe Small Companies ended down 0.4% at 15,008.27.
In European equities on Thursday, the CAC 40 in Paris ended down 0.4%, while the DAX 40 in Frankfurt ended down 0.5%.
European stocks ended on a downbeat note despite rallying earlier in Thursday's session, spurred on by Wall Street's impressive intraday recovery on Wednesday.
Stocks in New York soared after US Federal Reserve Chair Jerome Powell on Wednesday said a 75 basis point hike was not something the central bank is ‘actively considering’.
But markets were reversing those gains on Thursday, with the Dow Jones down 2.9%, the S&P 500 down 3.4% and the Nasdaq Composite diving 4.5%.
Safe haven asset gold was quoted at $1,881.76 an ounce at the London equities close Thursday, higher against $1,866.98 at the close on Wednesday as risk sentiment soured.
The euro stood at $1.0516 at the European equities close Thursday, down against $1.0560 at the same time on Wednesday. Against the yen, the dollar was trading at JP¥130.30, up compared to JP¥129.93 late Wednesday.
Dealing a blow to investor confidence in the UK was a downbeat tone from the Bank of England, with the pound tumbling despite the central bank lifting interest rates for the fourth meeting in a row.
The Monetary Policy Committee voted by a majority of six to three to increase Bank Rate by 0.25 percentage points, to 1.00% from 0.75%. It is the BoE's fourth rate hike in-a-row.
Governor Andrew Bailey along with Ben Broadbent, Jon Cunliffe, Huw Pill, Dave Ramsden and Silvana Tenreyro voted in favour of the proposition. However, the trio in the minority - Jonathan Haskel, Catherine Mann and Michael Saunders - preferred to increase Bank Rate by a chunkier 0.5 percentage points, to 1.25%.
‘The Bank surprised markets yet again in May. While we had no votes for a hold, today's outcome was relatively more dovish - despite three votes for a bigger 50bps rate move,’ said Deutsche Bank.
Dominating attention was the BoE's warning that inflation will average slightly over 10% at its peak in the fourth quarter and its new expectation that the UK economy will contract by 0.25% in 2023, a sharp downgrade from a prior forecast of 1.25% growth.
Deutsche Bank added: ‘Big picture, the MPC continued to convey its uncomfortable trade-off in tightening policy, with medium-term growth and inflation prospects substantially weaker (and borderline recession-like) in the May Monetary Policy Report.’
The pound was quoted at $1.2331 at the London equities close Thursday, down compared to $1.2501 at the close on Wednesday and trading at levels not seen since June 2020.
Shares in lenders such as NatWest, Lloyds Banking and HSBC ended down 4.5%, 3.6% and 1.4% respectively following the BoE's downbeat outlook.
A well-received set of results from oil major Shell failed to lift the FTSE 100. Shell shares advanced 3.1%.
In the three months to March 31, current cost of supply earnings attributable to shareholders rose to $5.03 billion from $4.35 billion in the same period the year prior. Income attributable to shareholders increased to $7.12 billion from $5.66 billion.
Turning to returns, Shell raised its first quarter dividend by 47% to $0.25 per share from $0.17 a year ago.
The energy firm's shares were further supported by higher oil prices. Brent oil was quoted at $110.84 a barrel at the London equities close Thursday, up from $108.55 late Wednesday.
Saudi Arabia, Russia and other key oil producers agreed on Thursday to another marginal increase in output, bolstered by risks to demand amid coronavirus restrictions in China.
Russia's invasion of Ukraine has added to supply concerns, which have increased with Europe's announced moves on a potential Russian oil embargo. But in short back-to-back meetings on Thursday, OPEC+ members reconfirmed ‘the decision to adjust upward the monthly overall production by 0.432 mb/d for the month of June,’ the group said in a statement.
Back in London, Mondi closed up 4.3% after reporting a strong quarterly performance underpinned by good demand across the business.
Higher average selling prices more than offset continued cost pressures. Underlying earnings before interest, tax, depreciation and amortisation rose 63% to €574 million, from €353 million in the same period a year prior.
The packaging firm also said it has decided to pull the plug on its Russian businesses through a divestment process that is ‘operationally and structurally complex’.
In the FTSE 250, Virgin Money UK fell 10% despite reinstating its interim payout and posting a sharp profit rise.
For the six months ended March 31, total operating income rose 21% to £844 million from £695 million a year prior. Pretax profit jumped to £315 million from £72 million.
Hiscox fell 8.6% as its investment return swung to a quarterly loss, as the specialist insurer battled high inflation and interest rate rises.
In the first quarter, the Hamilton, Bermuda-based company posted an investment loss of $119.4 million, compared to a $20.7 million return a year ago. ‘[This was] the result of unrealised losses in our bond portfolio due to higher interest rates, which are non-economic and non-cash in nature,’ the firm said.
‘Generationally high inflation is being experienced across most developed markets. Central bank monetary policy stances have hardened in response and markets have priced in some of the most significant interest rate rises seen for decades,’ Hiscox explained.
Trainline rose 9.3% after posting a narrowed annual loss, as significantly higher net ticket sales signal a recovery for the rail industry from the pandemic.
For the year ended February 28, the firm narrowed its pretax loss to £15.5 million from £106.8 million a year prior. Revenue rose to £188.5 million from £67.1 million as net ticket sales jumped to £2.52 billion from £783 million a year ago.
Elsewhere in London, shares in Reach dived 21% after the newspaper publisher reported a fall in revenue following Russia's invasion of Ukraine.
For the four month period to April 24, revenue fell 0.9% from the same time last year. The Mirror publisher explained that the market has experienced reduced advertiser demand in the last two months, with the war in Ukraine affecting content for news publishers.
Friday's UK corporate calendar has first quarter results from Holiday Inn owner InterContinental Hotels Group and British Airways parent International Consolidated Airlines Group.
Friday's economic calendar has UK Halifax house price data at 0700 BST, German industrial production at 0700 BST, a UK construction PMI at 0930 BST and the monthly US jobs report at 1330 BST.
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