On Wednesday, there was a more than 1% decline in UK shares, after data showed that inflation in the last month had reached a high of four decades. This added more pressure on the Bank of England to push up interest rates, while commodity-linked stocks tumbled because of falling prices in metals and crude.
FTSE Indexes Fall
There was a 1.2% drop in the FTSE 100 index, which is exporter-focused, even though the Sterling had also shown weakness. But, there was a 1.4% drop recorded in the FTSE 250, which is domestically focused, and it erased almost all of the gains recorded in the week. UK consumer price data showed that inflation had reached a high not seen in over 40 years, as it hit 9.1%. This is also the highest in all of the G7 countries and indicates just how tough the cost of living crunch is in the UK.
Market analysts said that now the Bank of England was under pressure to cool down the market with hikes in interest rates in the next couple of months in order to bring prices down by reducing demand. The British pound had once more declined against the US dollar and this fanned worries that inflation could make imported products even more expensive.
The main indexes in the United Kingdom were on course to end the month lower by 7% to 8%, as investor confidence came down because of increasing concerns about a recession. Last week, the Bank of England had announced a rate hike of quarter points that took the interest rate to 1.25% and said that it was ready to be more forceful for stamping out inflation dangers.
Energy stocks and miners were the biggest drags on the UK indexes, as they declined by 3.8% and 3.6% respectively due to plunging crude and industrial metal prices. There was a 2.7% increase in the shares of Natwest Group after the announcement from the British government about extending its trading plan selling the stake of the taxpayer in the British lending firm by another year.
There was a 3.5% drop in Harbour Energy after the gas and oil producer informed the British government that the company’s investment in the UK would shrink because of the planned windfall tax imposed on the energy sector.
Meanwhile, Brexit is transforming Britain into a more closed economy, as it is taking a toll on the long-term implications of wages and productivity. The expected hikes by the Bank of England in the coming months is already fueling worries of an economic downturn. The British economy has already shrunk more than expectations and the political turmoil in the country is also adding to it.
The Bank of England is the only major global bank to have hiked its interest rates since December, but it has not gotten as aggressive as some of its peers like the US Federal Reserve, because of the impact it would have on the British economy in the long run.