London open: FTSE falls on hawkish Fed, ahead of BoE announcement

London stocks fell in early trade on Thursday, taking their cue from a weak US session after the Federal Reserve lifted rates by 75 basis points overnight and struck a hawkish note on the outlook.

At 0825 GMT, the FTSE 100 was down 0.8% at 7,085.71, while sterling was 0.5% lower versus the dollar at 1.1335, with the Bank of England’s latest rate announcement due at midday.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said: "A fresh bout of volatility has reared up on indices after the chair of the Federal Reserve chair told investors to hold their horses when it comes to expectations about lower rate rises.

"There was an initial jump of optimism when the Fed stayed on the expected course and raised rates by 0.75%, hinting the end of super-size hikes could be in sight. But the S&P 500 galloped 2.5% lower as Jerome Powell warned that higher rates are set to hang around. The tech heavy Nasdaq took fright, plunging by 3.3% and worries have spilled over into trade in Asia, pulling stocks lower.

"Although it is clear the Fed is still desperate to kick inflation into touch, and the more aggressive moves in its playbook appear to be coming to an end with a gentler strategy on the way in the months to come. However, investors have been left wondering exactly when this softer approach will take effect -and anxious that higher rates are now going to linger for longer. This will have a negative effect on the future value of earnings, which high growth tech companies in particular have relied on for valuations."

On home shores, the BoE is widely expected to announce a 75-basis point hike later in the day - the biggest since Black Wednesday in 1992 and taking the base rate to 3%. This would be the highest level since the financial crisis in 2008.

Oanda market analyst Craig Erlam said: "The central bank has had the unenviable job of fighting soaring inflation amid enormous economic and political uncertainty. In recent months the country has had three Prime Ministers, three very different economic agendas, and no budgets outlining them. Not ideal for a central bank that's fighting double-digit inflation.

"It hasn't handled things perfectly this year either, that's clear. It's taken a far more cautious approach than others leaving it in the situation now that it must raise rates aggressively and publish economic forecasts with little insight into government spending and tax plans. The outlook is uncertain enough without that."

In equity markets, BT Group slumped as it confirmed it is seeking a further £500m of savings after being hit by surging inflation, including higher energy prices.

Rolls-Royce lost ground after the engine maker held annual guidance as the rebound in post-pandemic air travel continued and said recent market turmoil and inflation had not impacted cash flow.

Ashmore and Renishaw both fell sharply as they traded without entitlement to the dividend.

On the upside, supermarket chain Sainsbury's was in the black even as it posted a dip in first-half profits amid the cost-of-living crisis.

Trade kitchen supplier Howden Joinery rallied after saying it now expects FY2022 pre-tax profit to be "marginally" ahead of consensus forecasts as it hailed strong revenue growth.

Market Movers

FTSE 100 (UKX) 7,085.71 -0.82%
FTSE 250 (MCX) 18,024.07 -1.06%
techMARK (TASX) 4,235.98 -1.00%

FTSE 100 - Risers

Sainsbury (J) (SBRY) 201.00p 1.59%
Harbour Energy (HBR) 390.30p 1.51%
Haleon (HLN) 269.70p 0.99%
British American Tobacco (BATS) 3,300.00p 0.79%
Unilever (ULVR) 3,952.00p 0.08%
RS Group (RS1) 954.50p 0.00%
Aveva Group (AVV) 3,132.00p -0.10%
GSK (GSK) 1,443.80p -0.12%
AstraZeneca (AZN) 10,506.00p -0.13%
BAE Systems (BA.) 817.80p -0.15%

FTSE 100 - Fallers

BT Group (BT.A) 122.10p -4.42%
Ocado Group (OCDO) 622.20p -4.34%
Rolls-Royce Holdings (RR.) 79.48p -4.31%
Flutter Entertainment (CDI) (FLTR) 11,265.00p -3.64%
Intermediate Capital Group (ICP) 1,060.00p -2.71%
JD Sports Fashion (JD.) 98.30p -2.58%
Halma (HLMA) 2,065.00p -2.50%
Next (NXT) 4,918.00p -2.46%
Endeavour Mining (EDV) 1,495.00p -2.42%
International Consolidated Airlines Group SA (CDI) (IAG) 119.72p -2.25%

FTSE 250 - Risers

Howden Joinery Group (HWDN) 531.00p 2.39%
Baltic Classifieds Group (BCG) 139.20p 1.61%
Ascential (ASCL) 203.60p 1.60%
Ruffer Investment Company Ltd Red PTG Pref Shares (RICA) 313.00p 1.29%
Playtech (PTEC) 531.00p 1.14%
IP Group (IPO) 66.10p 0.76%
The Renewables Infrastructure Group Limited (TRIG) 133.60p 0.60%
Petershill Partners (PHLL) 199.20p 0.20%
Cranswick (CWK) 3,016.00p 0.07%
Countryside Partnerships (CSP) 216.60p 0.00%

FTSE 250 - Fallers

Ashmore Group (ASHM) 197.80p -7.31%
Watches of Switzerland Group (WOSG) 805.00p -4.22%
TI Fluid Systems (TIFS) 127.60p -3.92%
Bodycote (BOY) 490.00p -3.73%
Renishaw (RSW) 3,458.00p -3.52%
Bridgepoint Group (Reg S) (BPT) 204.40p -3.40%
SSP Group (SSPG) 201.50p -3.31%
ASOS (ASC) 581.50p -3.24%
Edinburgh Worldwide Inv Trust (EWI) 167.00p -3.24%
IntegraFin Holding (IHP) 258.60p -3.15%