UK stocks struggle on prospect of hawkish BoE after inflation spike

UK stocks struggle on prospect of hawkish BoE after inflation spike

UK’s main equity indexes were subdued today, with midcap stocks holding near one-week lows hit in the previous session on fears that aggressive steps by the Bank of England (BoE) to tame decades-high inflation will result in a sharp economic downturn. — Reuters pic

Thursday, 18 Aug 2022 6:16 PM MYT

LONDON, Aug 18 — UK’s main equity indexes were subdued today, with midcap stocks holding near one-week lows hit in the previous session on fears that aggressive steps by the Bank of England (BoE) to tame decades-high inflation will result in a sharp economic downturn.

The FTSE 100 slipped 0.2 per cent, tracking a cautious mood in global markets after the US Federal Reserve’s minutes a day earlier also showed policymakers committed to raising rates as high as needed to bring inflation under control.

A handful of shares trading ex-dividend also weighed on the blue-chip index, with miner Anglo American, lender HSBC and insurer Legal & General falling between 3.7 per cent and 4.3 per cent.

The domestically focussed midcap index was flat.

Data on Wednesday showed Britain’s annual consumer price inflation jumped to a higher-than-expected 10.1 per cent in July, fuelling bets of another big rate hike by the BoE next month.

“The Bank of England (BoE) remains painted into a corner, forced to become increasingly hawkish because of high inflation and a tight labour market, even as the economy rapidly slows,” BCA analyst wrote in a note.

“A recession is now unavoidable given the magnitude of the inflation shock, which is leading to a toxic mix of tightening monetary policy and contracting real incomes.”

Euro zone markets also struggled for momentum after a European Central Bank board member Isabel Schnabel said she favoured another large interest rate increase next month even as recession risks harden.

Meanwhile, Foreign Secretary Liz Truss remains far ahead of leadership rival Rishi Sunak in the race to become Britain’s next prime minister, a YouGov poll for Sky News showed.

She has pledged to cut taxes to mitigate the impact of surging prices on households, and suggested the government should have a bigger role in how the central bank operates.

Among other stocks, AO World jumped 12.1 per cent after the online electricals retailer reported full underlying earnings that topped analysts’ estimates.

Made.com fell 10 per cent after the online furniture retailer said it was considering equity capital raise. — Reuters