FTSE 100 cuts losses after massive BoE rate hike

UK’s exporter heavy FTSE 100 index pared losses on Thursday, as the pound extended falls after investors viewed the Bank of England’s large interest rate hike as the biggest in its monetary tightening pace.

The FTSE 100 fell 0.6%, after dropping nearly 1% earlier in the day, after the BOE raised rates by 75 basis points, its biggest increase since 1989, with interest rate futures now showing the central bank’s rate to peak at 4.6% in Sept 2023 vs. 4.7% before the announcement.

The pound fell over 1%, while midcap stocks shed 1.3%.

“This will most likely mark the peak in pace of tightening, especially with the bank (BOE) highlighting financial markets are pricing too much too soon,” said Edward Hutchings, head of rates at Aviva (LON:AV) Investors.

The central bank also noted that Britain has already entered a recession that could potentially last two years – longer than during the 2008-09 financial crisis.

A survey showed the biggest downturn since January 2021 hit British services companies last month, although it was not as severe as first estimated.

Rate sensitive banks dropped 0.6%.

Following the previous rate hike by the BoE, the Liz Truss government introduced an unpopular fiscal policy that threw markets into chaos forcing her to resign, eventually leading to Rishi Sunak being elected as prime minister.

This comes as global financial markets reel from the fourth straight 75-bps-hike by the Federal Reserve, with it also flagging the “ultimate level” of the benchmark policy rate would likely be higher than previously estimated.

Among stocks, RS Group Plc fell 9.2% after it said that CEO Lindsley Ruth would be taking a leave of absence from the business.

Britain’s second-biggest supermarket group, Sainsbury, rose 5.7% after it retained its financial guidance for this year.