The FTSE 100 has fallen to a three-month low amid jitters over further interest rate hikes and a deterioration in the relationship between China and the US.
Britain’s blue-chip index was down 1.17 per cent or 87.13 points to 7,354.97 this morning, meaning gains over the last year sit at just over 3 per cent.
The FTSE 100 has not hovered at levels seen today since around 17 March. Meanwhile, the FTSE 250 index is down 1.137 per cent or 251.46 points to 18,141.87.
Under pressure: Bank of England governor says UK interest rates have to rise to get inflation under control
Market pricing currently suggest the Bank of England’s base rate could peak at 6.5 per cent by the end of 2023, inflicting more pain on many borrowers.
Regarding rate hikes, BoE governor Andrew Bailey told the BBC on Thursday: ‘Unfortunately, this is how we have to get inflation down.
‘If we don’t get inflation down, it gets worse and we’ll have to put up interest rates more.’
Allan Monks, an economist at JP Morgan, has warned the bank could be forced to up base rate to 7 per cent if inflation continues to stay stubbornly high for longer than expected. The Consumer Prices Index rose by 8.7 per cent in the 12 months to April 2023.
However, given the difficulty forecasting the fortunes of the UK economy in recent times, Monks’ central assumption is the rate will peak at 5.75 per cent in November.
Fresh minutes from the Federal Reserve’s last meeting also rekindled concerns of tighter monetary policy in the US.
Currys shares also weigh on the index after the retailer reported a slump inprofit and axed its dividend.
Currys shares were down 11.81 per cent or 6.31p in early trading on Thursday to 47.14p after it unveiled a 38 per cent drop in annual profit.
UK housebuilders are also feeling the sting. Fresh PMI data published today revealed UK housebuilding suffered its steepest fall in three years last month, as rising borrowing costs hit demand.
Residential work came in at 39.6 on the S&P Global/CIPS UK Construction PMI, representing its fastest decline since May 2020, weakening overall building data. A mark above 50 indicates growth.
The survey flagged ‘weaker demand due to rising borrowing costs and a subdued outlook for the housing market’.
Persimmon shares were down over 2 per cent to 991.88p today, while Barratt Developments shares were down 2.55 per cent to 404.70p.
China-exposed bank HSBC and Standard Chartered fell 1.3 per cent and 1.9 per cent, respectively, while insurer Prudential lost 1.2 per cent on elevated tensions between the US and China.
The FTSE 100’s oil heavyweights Shell and BP also fell after Exxon Mobil signalled a fall in profits amid lower natural gas prices and refining margins.
Industrial metal miners slipped 1.8 per cent as prices of most base metals came under pressure.
The commodity-heavy UK benchmark index has been underperforming its peers this year amid volatility in resource prices over an uncertain global outlook.
Listed water utilities, namely United Utilities, Pennon and Severn Trent, whose share prices fell amid the Thames Water debacle, were among the few risers on the London market as they recovered some lost ground today.
The jump followed an update from Morgan Stanley, which raised United Utilities’ rating to ‘overweight’ from ‘equal-weight’.
Sterling is hovering at around $1.28 against the US dollar.
Minutes from the US Federal Reserve’s June meeting showed ‘almost all’ officials agreed to hold interest rates steady at the June meeting to buy time and assess whether further rate hikes would be needed.
Chris Beauchamp, chief market analyst at IG Group said markets are perceiving the Fed’s decisions as more of a ‘hawkish pause’.
He added: ‘People were saying they’re pausing but its not a longer-term move.’
Victoria Scholar, head of investment at Interactive Investor, said: ‘Treasury yields and the US dollar made gains after minutes from the Fed’s June meeting suggested further tightening is to come from.
‘The FOMC minutes were largely interpreted as hawkish by the markets, even though the pace of tightening is likely to slow, and rates were left unchanged last month. The central bank said the economy faces “headwinds from tighter credit conditions”.’
