UK’s FTSE 100 slipped for a third straight session on Thursday, after the European Central Bank signalled it will hike euro zone interest rates next month for the first time in a decade.
The blue-chip index ended 1.5% lower with healthcare and financials leading losses and the midcap FTSE 250 index slipped 1.2%.
Markets have been anticipating the ECB’s decision for weeks, and the prospect of a greater rate hike in September impacted sentiment at a time when the euro zone economy is struggling with slowing growth and rising inflation.
“While the ECB did not take any action today, the outcome of today’s meeting had a distinctly hawkish tone,” said Silvia Dall’Angelo, senior economist at Federated Hermes Limited.
“Overall, it makes sense for the ECB to embark on a gradual normalisation path. Most recent data - the PMIs surveys, notably - suggest the recovery has continued, despite the shock from the war.”
The focus now shifts to U.S. inflation data due on Friday, with the Federal Reserve expected to continue with a 50 basis point rate increases at its meeting next week and again in July.
British short- and medium-dated government bond yields rose sharply after the European Central Bank’s decision, prompting markets to bet on faster tightening by the Bank of England too.
Britain’s housing market showed signs of a slowdown last month, as fast-rising inflation and higher rates tightened the financial squeeze for many households, a survey showed.
British online electricals retailer AO World fell 2.9% on plans to close its German business.
British American Tobacco’s options for leaving Russia, where it controls almost a quarter of the market, include transferring the business to its local partner, the maker of Pall Mall and Rothmans cigarettes said. Shares were down 2.0%.
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