London close: Stocks fall further after BoE rate hike

London stocks closed in the red on Thursday, after the Bank of England lifted interest rates by 50 basis points, on the back of a 75-basis point hike from the US Federal Reserve across the pond.

The FTSE 100 ended the session down 1.08% at 7,159.52, and the FTSE 250 was off 2.05% at 18,331.69.

Sterling was also in negative territory, last trading down 0.09% on the dollar at $1.1260, and weakening 0.15% against the euro to €1.1439.

“The battle against inflation was taken up a notch further today as we saw the Swiss National Bank, the Bank of England and the Norges Bank follow the Federal Reserve’s lead last night and raise interest rates, while we also saw intervention from the Bank of Japan in defence of the Japanese yen,” said CMC Markets chief market analyst Michael Hewson.

“In the aftermath of last night’s negative US session, European markets opened sharply lower and while they tried to recover off the lows of the day, the continued rise in yields has contrived to keep the pressure on the recent lows, as downward pressure continues to prevail.”

Hewson said the FTSE 100 struggled through the session despite resilience in basic resources and energy, on the back of firmer commodity prices in copper as well as oil and gas, with gains for Rio Tinto, Glencore, and BP.

“That’s been as good as it gets on the positive side, with weakness almost everywhere else.”

The Bank of England hiked interest rates by 50 basis points to 2.25% at lunchtime, as it looked to combat still-surging inflation.

It followed an increase of the same size last month - the biggest in 27 years - and took the benchmark rate to its highest level since 2008 in a seventh consecutive rate increase.

Among the nine rate setters, five voted to raise rates by 50 basis points, three by 75 and one opted for a 25 basis point hike.

"Should the outlook suggest more persistent inflationary pressures, including from stronger demand, the Committee would respond forcefully, as necessary," the Bank said in a statement.

Separately, the Monetary Policy Committee voted unanimously to approve plans set out in August for an £80bn reduction in the size of the Asset Purchase Facility over the next 12 months.

UK consumer price inflation eased to 9.9% in August from 10.1% in July, with the BoE saying on Thursday that given the Energy Price Guarantee announced earlier this month, the peak in measured CPI was now expected to be just under 11% in October, down from a previous forecast of 13%.

The new energy package would see household bills capped at £2,500 for two years, saving the average household around £1,000 a year.

"Nevertheless, energy bills will still go up and, combined with the indirect effects of higher energy costs, inflation is expected to remain above 10% over the following few months, before starting to fall back," the Bank said.

On Wednesday, the US Federal Reserve hiked interest rates by 75 basis points as expected and vowed to "keep at it" in the face of surging inflation.

The US central bank also cut its economic growth expectation for this year to 0.2% from 1.7% growth in June.

Elsewhere, Kwasi Kwarteng confirmed earlier that the 1.25 percentage point rise in National Insurance that came into force in April would be reversed from November.

Ahead of Friday’s mini-budget, the Chancellor also said the government would cancel the Health and Social Care Levy that was due to be implemented next April.

The move will mean that almost 28 million people will keep an extra £330 of their earnings on average next year, while 920,000 businesses will save nearly £10,000 on average, as the government also scrapped a planned hike to dividend tax rates.

“Taxing our way to prosperity has never worked - to raise living standards for all, we need to be unapologetic about growing our economy,” Kwarteng said.

“Cutting tax is crucial to this - and whether businesses reinvest freed-up cash into new machinery, lower prices on shop floors or increased staff wages, the reversal of the levy will help them grow, whilst also allowing the British public to keep more of what they earn.”

Still in Westminster, the government officially lifted its ban on fracking for shale gas "to bolster the UK’s energy security".

A moratorium on fracking had been in place since 2019, following a series of earth tremors.

The government also confirmed its support on Thursday for a new oil and gas licensing round, expected to be launched by the North Sea Transition Authority (NSTA) in early October.

“In light of Putin’s illegal invasion of Ukraine and weaponisation of energy, strengthening our energy security is an absolute priority, and - as the prime minister said - we are going to ensure the UK is a net energy exporter by 2040,” said business and energy secretary Jacob Rees-Mogg.

“To get there we will need to explore all avenues available to us through solar, wind, oil and gas production - so it’s right that we’ve lifted the pause to realise any potential sources of domestic gas.”

Stateside, meanwhile, fresh data from the US Department of Labor showed Americans filing first-time unemployment claims at an accelerated pace in the week ended 17 September.

Initial jobless claims rose by 5,000 week-on-week to 213,000, below market expectations for a print of 218,000 but still a slight increase from the prior week's downwardly revised print.

On a non-seasonally adjusted basis, initial claims rose by 19,385 to 171,562, while the four-week moving average, which aims to strip out week-to-week volatility, fell by 6,000 from a week earlier to 216,750.

On London’s equity markets, Hargreaves Lansdown slumped 3.68% as it traded without entitlement to the dividend, with Crest Nicholson down 1.17%, IG Group off 0.36%, Essentra losing 1.28%, JTC slipping 1.63%, and Redrow 1.26% weaker as they also went ex-divi.

JD Sports Fashion tumbled 8.4% after the sportswear retailer posted a drop in interim profits and said it remained cautious about trading through the remainder of the second half, given widespread macroeconomic uncertainty and inflationary pressures.

Polymetal International tanked 11.5% after the Anglo-Russian precious metals miner said it swung to a net loss in the first half amid lower gold sales.

Gambling software development company Playtech was also in the red, sliding 10.17% even after it hailed an "excellent" first-half performance, with a rise in revenues and earnings driven by regulated B2B markets and the Snaitech business.

Royal Mail fell 4.79% after saying it wanted to take talks with the Communication Workers Union to arbitration, having failed to make any progress over pay rises after five months.

It also said it would "review" agreements aimed at protecting jobs and conditions that were signed nine years ago when the company was privatised.

Banks swung lower in late trading after popping on the back of the rate hike earlier, with Lloyds Banking Group down 1.04%, Standard Chartered off 0.1% and Barclays 0.92% weaker.

On the upside, miners were on the rise with Glencore up 0.82% and Anglo American 0.85% higher.

Imperial Leather maker PZ Cussons was ahead 2.05% after it said first quarter like-for-like sales rose 6.7% on the back of higher prices, but also reported a fall in annual profits due to lower revenues and brand impairment.

Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Iain Gilbert.

Market Movers

FTSE 100 (UKX) 7,159.52 -1.08%
FTSE 250 (MCX) 18,331.69 -2.05%
techMARK (TASX) 4,196.48 -1.02%

FTSE 100 - Risers

Coca-Cola HBC AG (CDI) (CCH) 1,944.50p 2.32%
Rio Tinto (RIO) 4,828.00p 2.29%
Kingfisher (KGF) 240.50p 1.26%
Aveva Group (AVV) 3,137.00p 1.13%
Anglo American (AAL) 2,831.00p 0.85%
Glencore (GLEN) 490.00p 0.82%
Associated British Foods (ABF) 1,333.00p 0.76%
BAE Systems (BA.) 810.00p 0.62%
BP (BP.) 458.25p 0.59%
Tesco (TSCO) 227.00p 0.53%

FTSE 100 - Fallers

JD Sports Fashion (JD.) 113.45p -8.40%
Ashtead Group (AHT) 3,907.00p -7.26%
Intermediate Capital Group (ICP) 1,088.50p -7.08%
Hargreaves Lansdown (HL.) 832.40p -6.64%
Dechra Pharmaceuticals (DPH) 2,772.00p -6.18%
SEGRO (SGRO) 805.00p -5.27%
Entain (ENT) 1,139.50p -5.14%
Land Securities Group (LAND) 569.60p -5.00%
British Land Company (BLND) 378.70p -4.87%
Spirax-Sarco Engineering (SPX) 9,872.00p -4.71%

FTSE 250 - Risers

QinetiQ Group (QQ.) 344.20p 2.87%
BH Macro Ltd. GBP Shares (BHMG) 4,940.00p 2.07%
PZ Cussons (PZC) 199.20p 2.05%
Investec (INVP) 402.70p 1.85%
Ferrexpo (FXPO) 134.90p 1.81%
Plus500 Ltd (DI) (PLUS) 1,706.00p 1.55%
Baillie Gifford Japan Trust (BGFD) 752.00p 1.35%
Centamin (DI) (CEY) 89.76p 1.20%
Capricorn Energy (CNE) 241.00p 1.09%
Beazley (BEZ) 621.00p 0.89%

FTSE 250 - Fallers

Polymetal International (POLY) 199.95p -11.50%
Darktrace (DARK) 313.70p -11.31%
Playtech (PTEC) 425.80p -10.17%
Aston Martin Lagonda Global Holdings (AML) 144.90p -9.63%
Trainline (TRN) 318.00p -6.66%
LXI Reit (LXI) 131.80p -6.52%
Tritax Big Box Reit (BBOX) 148.00p -6.27%
Tritax Eurobox (GBP) (EBOX) 73.70p -5.63%
Supermarket Income Reit (SUPR) 109.00p -5.63%
Redrow (RDW) 471.20p -5.61%