LONDON: London’s FTSE 100 erased early gains to end lower on Thursday, as the pound jumped after the Bank of England (BoE) announced a second consecutive interest rate hike to curb inflation.
The FTSE 100 index dipped 0.7%, as a sharp rise in sterling hurt shares of internationally-focused companies. The FTSE mid-cap index fell 1.3%.
The BoE raised interest rates by 25 basis points (bps) to 0.5%, with four out of nine policymakers wanting a bigger increase to contain rampant price pressures.
“Inflation is likely to remain elevated in the coming months - particularly with another energy price cap hike coming in April...,” Jai Malhi, global market strategist at J.P. Morgan Asset Management, said in a note.
“This calls into question how much the Bank has to tighten in order to cool inflation down .... We think the central bank can afford to be slightly more patient than the market is pricing,” Malhi stated.
The BoE said consumer price inflation - which stood at 5.4% in December - now looked set to peak at around 7.25% in April, which would be the highest since the recession-ravaged early-1990s and miles off its 2% target.
“Four members voted for a 50 bps hike, which is a hawkish turn markets did not expect,” said Anna Stupnytska, a global macro economist at Fidelity International.
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