FTSE 100 closes at three-week low
In the City, the FTSE 100 share index ended the day at its lowest closing level since the start of June.
The blue-chip share index closed 57 points down at 7502, down 0.76%.
Chris Beauchamp, chief market analyst for IG, said fears that high interest rates will cause a recession hit share prices:
“The FTSE 100 has fallen to a three-week low today as investors worry about the impact of more rate hikes on the UK economy.
“The losses are even more pronounced on the mid-cap FTSE 250 due to its UK exposure.
“A recession in the UK now seems an inevitability with the Bank of England committed to more rate hikes, and at a faster pace.
“Everything is now subordinate to the task of getting inflation under control, with heightened recession risk accepted as a necessary evil.”
"A nod to 'persistent inflation' should put everyone on notice that Bailey and co have overcome their reticence about more aggressive hiking."@chrisb_ig spoke to @ReutersUK after the latest BoE hike https://t.co/8r4ab82j45
— IG (@IGcom) June 22, 2023
Updated
Closing post
Time for a recap.
The governor of the Bank of England has denied aiming to create a recession, in an attempt to cool the UK’s inflation problem.
After lifting UK interest rates to the highest level since 2008 at noon today, Andrew Bailey said:
We’ve got an economy that is much stronger and more resilient than we expected it to be. Part of that is because energy prices have come down so much, which is good news. It’s good news.
So we’re not we’re not expecting, or desiring a recession. But we will do what is necessary to bring inflation down to target.
Bailey also declared that the current level of wage increases, and prices rises, are not sustainable with the Bank’s goal of lowering inflation.
Insisting that the Bank expects inflation to fall, he added:
And it’s important than that price setting and wage settling reflects that because the current levels, I’ll be absolutely honest, are unsustainable.
"We cannot continue to have the current level of wage increase"
— Sky News (@SkyNews) June 22, 2023
Bank of England Governor, Andrew Bailey, says the current levels of price setting and wage setting are "unsustainable", after the BoE raises interest rates to 5%.https://t.co/DCDDclZeFy
📺 Sky 501, Virgin 602 pic.twitter.com/Yun6fw6YVX
At noon today, the Bank’s monetary policy committee (MPC) increased rates for the 13th consecutive time to the highest level since 2008. Before the decision was announced, financial markets were evenly split on whether the Bank would vote for a half-point rise or a smaller quarter-point increase.
Amid a growing sense of alarm over stubborn inflationary risks, the MPC said:
“There has been significant upside news in recent data that indicates more persistence in the inflation process, against the backdrop of a tight labour market and continued resilience in demand.”
The Bank said that it would continue to watch for persistent inflationary risks, and would push interest rates higher if necessary.
This latest rate rise makes it clear the Bank of England “means business” when it comes to tackling inflation, said professor of global economy and deputy dean of Cranfield School of Management, Joe Nellis.
Nellis added:
Unfortunately, further financial hardship is expected for many millions of households - and those at the lower end of the income scale with variable rate mortgages, or who are in the process of re-mortgaging, will be hit the hardest.
Rishi Sunak insisted after the decision that his government would “remain steadfast in its course” to curb inflation. The prime minister faces growing calls to intervene as millions of households feel the strain from surging mortgage costs.
“The reason interest rates are going up is because inflation is too high,” he told the Times CEO summit. Sunak added:
“This is something that makes everybody poorer, that’s what inflation does. That’s why we’ve got to grip it, we’ve got to reduce it and interest rates are a part of that.
“Now, I always said this would be hard – and clearly it’s got harder over the past few months – but it’s important that we do do that.”
The financial markets now indicate there is a 33% chance that the Bank unleashes another half-point hike in August, taking interest rates to 5.5%. Bank rate is expected to hit 6% by the end of this year, and remain there until next June.
Chancellor Jeremy Hunt backed the Bank of England’s move, saying that high inflation is “a destabilising force eating into pay cheques and slowing growth”.
Unions criticised the Bank’s move, with the TUC blaming “dangerous groupthink in the Bank of England and Downing Street”.
The Green Party called for a wealth tax, to fund more support for struggling households and those on benefits.
There was also drama in Turkey, where the central bank almost doubled interest rates.
The Central Bank of Turkey raised interest rates for the first time in more than two years, from 8.5% to 15%, lower than some economists had forecast. The lira hit a record low afterwards.
And in other news…
Shares in Ocado have soared, amid market speculation that the online supermarket and retail technology group could be the target of a takeover.
A fresh round of rail strikes is set to disrupt national networks during July, after the RMT union announced that 20,000 workers would stage three days of walkouts.
The cost of a room at Premier Inn’s hotels in London rose sharply over the last three months, with tourists visiting for the coronation of King Charles and strong demand for budget stays in the capital boosting the chain.
A legal challenge against the government’s decision to build the Sizewell C nuclear power plant has been rejected.
The UK’s largest dairy cooperative has said there could be further increases in the price of milk and other dairy products if the government does not urgently tackle labour shortages in farming.
Sky has launched a smart camera for its streaming television to allow customers to watch live and on-demand TV remotely with friends, place video calls via Zoom, track workouts and play motion-controlled games.
