UK’s main stock indexes dropped on Thursday as investors mulled the prospect of a higher-than-expected interest rate hike by the Bank of England, following still-high inflation data.

The benchmark FTSE 100 was down 1% at 0813 GMT, touching a three-week low, while the FTSE 250 mid-cap index lost 0.6%.

The healthcare and bank indexes were both down over 1% each, leading broad-based declines across sectors.

Traders’ bets were almost evenly split between a 25-basis point (bps) and 50-bps hike by the BoE later in the day, after data on Wednesday showed inflation defied predictions of slowing down and held steady at 8.7% in May.

Bank of England poised to raise rates after inflation shock

With bets on further rate hikes also in the picture, investors fretted about the BoE’s ability to curtail inflation without sparking a recession. The BoE has already raised rates by 440 bps since December 2021.

“This idea of higher rates for longer is probably the issue, with UK’s history of high inflation,” said Jamie Dutta, market analyst at Vantage Markets.

“Rates are already in a quite restrictive territory and then if they go above 5% that is even more restrictive … we’ll be crimping economic activity.”

Not only the BoE, but the hot inflation data also flashed a warning sign for Prime Minister Rishi Sunak who pledge to halve inflation and grow the economy by the year end ahead of a national election expected in 2024.

The FTSE 100 has been muted this year, lagging a 6.5% and 14% gain in peers euro zone’s STOXX 600 and Wall Street’s S&P 500, thanks to volatile commodity prices and a hawkish BoE.

Meanwhile, U.S. Federal Reserve Chair Jerome Powell’s congressional testimony hinted at the likelihood of further rate hikes to curtail inflation.

Bucking the weak trend, Ocado jumped 18.2% to top the FTSE 100 after a report in The Times cites chatter of possible bid interest for the online supermarket and technology group.