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(Alliance News) - Equities in London closed lower on Thursday as interest rate hikes from the Bank of England and the European Central Bank, as well as bleak economic forecasts, sent a chill through global markets.
The FTSE 100 index closed down 0.9%, or 69.76 points at 7,426.17. The FTSE 250 ended down 0.8%, or 144.13 points, at 18,893.79, and the AIM All-Share closed down 1.0%, or 8.10 points, at 828.45.
The Cboe UK 100 ended down 1.0% at 742.69, the Cboe UK 250 closed down 0.7% at 16,333.07. The Cboe Small Companies however ended up 0.3% at 12,928.90.
Investors face yet another interest rate hike as the Bank of England raised interest rates by 50 basis points on Thursday, as expected.
The central bank raised rates to 3.50% from 3.0% previously. Market consensus, as cited by FXStreet, had expected this rise by Threadneedle street.
Six members backed the half a percent hike, while Swati Dhingra and Silvana Tenryro backed no change and Catherine Mann favoured a larger 75 basis point hike.
Looking forward, the monetary policy committee said that there are "considerable" uncertainties around the UK's outlook and confirmed that it will respond as "forcefully, as necessary".
"Should the economy evolve broadly in line with the November Monetary Policy Report projections, further increases in Bank Rate might be required for a sustainable return of inflation to target [of 2.0%]," the bank said.
Hargreaves Lansdown's Susannah Streeter commented: "The Bank of England has unwrapped another unwelcome present of an interest rate rise just ten days before Christmas, inflicting fresh cost-of-living pain on borrowers. It means the chill descending on the UK economy is set to turn into a much colder snap, with the latest hike in interest rates, freezing off growth further in a bid to cool inflation, which is still at the steaming rate of 10.7%.
"This is the ninth consecutive rate rise since December last year and the last time the rate stood above 3% was in October and early November of 2008, as the effects of the financial crisis were taking hold and the Bank was in the process of rapidly reducing rates to help the economy," she continued.
The pound weakened significantly, quoted at USD1.2210 at the close on Thursday in London, lower compared to USD1.2410 at the stock-market close on Wednesday.
The ECB followed the Bank of England's lead, and raised rates by 50 basis points. It struck a more hawkish tone than the Bank of England, warning there will be further "significant" rises to come.
The Frankfurt-based bank said "based on the substantial upward revision to the inflation outlook", it expects to raise rates further.
"In particular, the Governing Council judges that interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive to ensure a timely return of inflation to the 2% medium-term target," the central bank said.
Speaking at a press conference after the announcement, ECB President Christine Lagard said that interest rate hikes should be expected at a "50 basis point pace for a period of time"
CMC Markets' Michael Hewson said: "While the rate hike of 50bps was widely expected, what came next was not, as Madam Lagarde adopted an almost Bundesbank assessment of what was going to come in respect of monetary policy next year. Not only did she outline the prospect of at least another 100bps of rate hikes between now and March, but the economic forecasts also made for grim reading.
"Inflation forecasts were pushed higher, with CPI not expected to come back to target before 2025, but GDP forecasts were revised lower, meaning that not only is Europe having to contend with the prospect of higher inflation, but also much higher rates, with all the risks that could present to Italy's bond markets, where 10 yields surged by over 25bps," Hewson commented.
In European equities on Thursday, the CAC 40 in Paris ended down 3.0% while the DAX 40 in Frankfurt ended 3.2% lower.
The euro stood at USD1.0637, lower against USD1.0660 at Wednesday's close. Against the yen, the dollar was trading at JPY137.70, higher compared to JPY134.82.
Stocks in New York were lower at the London equities close, with the DJIA down 2.4%, S&P 500 down 2.6% and the Nasdaq Composite down 3.0%.
On the FTSE 100, International Consolidated Airlines closed highest, up 1.8%, as JPMorgan placed the British Airways parent on 'positive catalyst watch'.
Mondi fell 2.2%.
It entered into an agreement to sell its three Russian packaging converting operations to the Gotek Group for EUR24 million.
But the Weybridge, England-based paper and packaging firm said the loss on the disposal is expected to be in the range of EUR70 million to EUR80 million.
The deal is conditional on the approval of the Russian government, and Mondi warned that there can be no certainty as to when the disposal will be completed, given an evolving political and regulatory environment.
In the FTSE 250, Currys ended 5.7% lower.
It reported a sharp swing to a loss in the six months that ended October 29, due to an impairment and increasing costs and as revenue declined amid disruption in the Nordic region.
The London-based electronics retailer posted a pretax loss of GBP548 million, swinging from a profit of GBP48 million in the previous year.
AJ Bell's Russ Mould said: "Currys' international business is taking a big hit. If people sometimes forget the company has a large overseas presence, they got an unwelcome reminder as margins in Scandinavia and southern Europe come under serious pressure. For now, Currys is guiding that this is a short-term issue as rivals sell off heavily discounted excess stock, however the market may remain sceptical of a recovery in this part of the business until it has seen evidence of improvement."
Drax closed up 1.5%
The Yorkshire-based power generator said it expects 2022 earnings to beat analyst expectations.
Drax placed market consensus for adjusted Ebitda between GBP651 million to GBP681 million, at least 64% higher from GBP398 million in 2021.
"The power sales reflected in the Generation business's contracted power sales book includes some exchange traded contracts, with higher power prices resulting in an increase in collateral payments on these contracts in 2022," Drax said.
Gold was priced at USD1,776.01 an ounce, lower against USD1,810.74. Brent oil was quoted at USD81.07 a barrel at the close in London on Thursday, up from USD82.51 late Wednesday.
On Friday there are half-year results for Gore Street Energy Storage and full-year results for Hollywood Bowl.
In Friday's economic calendar, there's a flash manufacturing PMI from Japan overnight, followed by flash PMIs from the EU, Germany, and the UK. Later in the day, there are flash services and manufacturing PMIs from the US.
By Chris Dorrell, Alliance News reporter
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