Europe midday: Shares plunge as BoE follows Fed with rate hike
European stocks slumped by more than 2% at midday on Thursday as inflationary fears gripped the market a day after the US Federal Reserve raised interest rates by an aggressive 75 basis points and the Bank of England also lifted its benchmark rate in a bid to combat spiralling inflation.
US stock index futures fell sharply, indicating that Wednesday's Wall Street rally after the Fed's decision to hike rates by their largest margin in three decades would be short lived. Nasdaq 100 futures had plunged by almost 3%.
The Fed on Wednesday raised its target interest rate by 75 basis points, its biggest rate hike since 1994, and projected a slowing economy and rising unemployment in the months to come. In London, the BoE lifted its base rate to 1.25% from 1%.
“The Bank of England is playing a game of slowly, slowly catchy inflation, rather than the shock and awe tactics being employed across the Atlantic," said Laith Khalaf, head of investment analysis at financial platform AJ Bell.
"Despite the UK starting to tighten monetary policy first, interest rates are now higher in the US markets will no doubt seize on this as a sign the Bank of England has bottled it, but an incremental strategy allows the rate setting committee to observe more data as it comes in, and fine tune its approach as circumstances dictate."
"The US economy also has more long-term fixed mortgages than the UK, which makes interest rates across the pond a blunter policy tool, so the Fed has to create a bit of extra bang to have the same effect on a buck."
In equity news, retail shares were out of favour after UK online fashion retailer ASOS slumped almost a third on the back of a warning that surging inflationary pressures were affecting shopping behaviour.
German rival Zalando dropped 10% and JD Sports Fashion 8%.
Shares in THG dived 20% after Belerion Capital said it no longer planned to make an offer for the online retailer.