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(Alliance News) - Stock prices in London were lower heading into Friday afternoon, as a poor week for equities continued, with investors fretting over the prospect of central banks keeping interest rates higher for longer.
Among those leading the decline on the FTSE 100 were housebuilders, as the sector is set to face more disruption from falling prices and robust mortgage rates. Ocado returned some M&A-driven gains, meanwhile.
The FTSE 100 index was down 19.04 points, 0.3%, at 7,482.99. So far this week, the blue-chip index has lost around 2.0%.
The FTSE 250 was down 152.82 points, 0.8%, at 18,175.15, and the AIM All-Share was down 2.93 points, 0.4%, at 770.51.
The mid-cap FTSE 250 index has felt the brunt of an increasingly difficult outlook for the UK economy, and has lost 4.5% so far this week.
The Cboe UK 100 was down 0.2% at 746.30, the Cboe UK 250 was down 1.0% at 15,906.59, and the Cboe Small Companies was down 0.1% at 13782.64.
The Bank of England surprised on Thursday with a larger than expected interest rate hike. Thursday's hike took the UK's benchmark bank rate to 5.00% from 4.50% previously.
A 25 basis point hike had been largely expected. However, following Wednesday's red-hot consumer price index data, bets on a half-point hike had increased, with the expectation that a more aggressive move may better tame the UK's stubborn annual inflation rate.
The high interest rate environment has already proven to be weighing on the UK housing market, with both house prices and mortgage approvals falling in recent months.
Following the BoE hike, HSBC downgraded the stock of Taylor Wimpey, Persimmon, Barratt Developments and Berkeley. The stocks fell 2.3%, 3.1%, 2.6%, and 2.7% respectively at midday.
It now rates Taylor Wimpey, Persimmon and Barratt Developments at 'hold' and Berkeley at 'reduce'.
Lenders exposed to the UK mortgage market struggled. NatWest and Lloyds were down 1.0% and 0.9%, respectively.
The pound was quoted at USD1.2718 at midday on Friday in London, down compared to USD1.2741 at the equities close on Thursday.
According to preliminary survey data on Friday, the UK's private sector continued to grow, albeit at a slower pace.
The latest S&P Global/CIPS UK flash composite purchasing managers' index fell to 52.8 points in June, from 54.0 in May. Falling closer towards the 50-point no-change mark, it shows private sector growth slowed in Britain over the month.
The market had been expecting only a slight decline to 53.6, according to FXStreet-cited consensus.
The contraction in manufacturing worsened, with the PMI slipping to 46.2 from 47.1, which was also below forecasts of 46.8. Production levels fell due to "subdued" underlying demand, as well as customer destocking.
However, the flash services PMI remained in growth, although the PMI faded to 53.7 from 55.2. This is also lower compared to market forecasts of 54.8 and it suggests the pace of growth slowed.
The service industry in May was boosted by a third bank holiday, coupled with some good weather.
"And it's exactly that resilience the Bank of England has been troubled by. The service sector was largely responsible for keeping the UK economy in positive territory in April and though all those bank holidays are likely to send May's number in the other direction it's clear there is still a lot of money being spent," AJ Bell analyst Danni Hewson commented.
"For those feeling the squeeze of higher mortgage payments, or those already crippled by cost of living pressures, life is tough and money is in short supply. But there are millions more still sitting on low fixed rates who are only just beginning to contemplate what lies ahead. Those consumers are likely to start cutting back, and retailers are right to be wary."
Over in the US, in his two-day testimony this week, the Federal Reserve Chair Jerome Powell reiterated the central bank's hawkish stance.
The US central paused its campaign of monetary tightening last week, after raising its benchmark lending rate 10 times in a row to tackle inflation. The Fed's benchmark now sits in a range between 5.0% and 5.25% – its highest level since 2007.
Stocks in New York were called lower. The Dow Jones Industrial Average was called down 0.3%, the S&P 500 index down 0.5%, and the Nasdaq Composite down 0.7%.
The euro stood at USD1.0867, lower against USD1.0953 at the European equities close on Thursday. Meanwhile, against the yen, the dollar was trading at JPY143.30, higher compared to JPY142.86.
In European equities on Friday, the CAC 40 in Paris was down 0.3%, while the DAX 40 in Frankfurt was down 0.7%. The Frankfurt benchmark was hurt by Siemens Energy plunging by 33%.
The company warned that technical problems at its wind turbine unit Siemens Gamesa were worse than previously thought.
Siemens Gamesa CEO Jochen Eickholt told reporters "the quality problems go well beyond what had been known hitherto". The company said it was setting aside more than EUR1 billion to deal with faulty components.
In the FTSE 100, GSK jumped 6.0%, after it reached a settlement for a California lawsuit related to Zantac.
The pharmaceutical company said it has reached a confidential settlement with James Goetz, a claimant in Zantac litigation. The case he filed in the California state court, which was set to begin in July, will now be dismissed. Zantac is the subject of numerous lawsuits, which allegedly link the heartburn drug with cancer.
GSK said the settlement reflects its desire to avoid a protracted legal fight. It added that it does not admit any liability and will continue to "vigorously defend itself" in Zantac cases.
"News pharmaceutical giant GSK has settled a case in California alleging its Zantac heartburn medication caused cancer, while crucially admitting no liability, is not a full stop on the saga but is the latest punctuation point in what shareholders will hope is its final stanza," said AJ Bell's Hewson.
"Once the world's best-selling drug, there have been a series of lawsuits brought in the US implying a link between Zantac and cancer but, so far, GSK has been able to navigate its way through these choppy waters."
Haleon, which also has exposure to Zantac litigation, rose 0.3%, while Sanofi edged up 1.5% in Paris.
Ocado fell 6.7%, returning some of its 32% gain from Thursday, which was driven by chatter than the online retailer and warehouse technology provider is the object of takeover interest.
On London's AIM, Audioboom lost 26%, as it lowered its outlook.
The London-based podcast provider said the advertising markets have remained challenging "for longer than anticipated", meaning that it expects to report lower revenue and adjusted earnings before interest, tax, depreciation, and amortisation than previously forecast.
However, the firm added that it expects that markets will improve, and is "in prime position to take advantage when they do".
Brent oil was quoted at USD73.63 a barrel at midday in London on Friday, down from USD74.22 late Thursday. Gold was quoted at USD1,917.11 an ounce, up against USD1,913.60.
Still to come on Friday's economic calendar, there is a US flash manufacturing and services PMI reading at 1445 BST.
By Sophie Rose, Alliance News reporter
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