The FTSE 100 tumbled on Thursday after the latest US interest rate cut drove a sharp sell-off on Wall Street.
Traders in London followed suit, with top equities falling amid caution ahead of the UK’s own pivotal interest rate decision.
Bank of England policymakers are expected to hold interest rates at 4.75% following their latest Monetary Policy Committee meeting.
The pound lifted in value as a result, while the dollar came under pressure following the US cut.
Sterling was up 0.57% at 1.263 against the US dollar shortly before the noon interest rate decision.
The strength of the pound helped to heap more pressure on major London-listed firms.
The FTSE 100 was down 112 points, or 1.37%, at 8,087.11, taking the index to its lowest for almost a month.
Lenders and housing firms were among the biggest fallers as they digested the cut to US rates and predicted a hold for UK interest rates.
Weakness in London came after the main US market fell sharply in Wednesday trading.
The slump was sparked by the US Federal Reserve, which cut interest rates by another 0.25 percentage points – but also signalled it will cut rates fewer times next year than previously predicted.
The Dow Jones dropped by 2.6% for the session, marking its 10th consecutive day of losses. The S&P 500 meanwhile fell by around 3%.
Russ Mould, investment director at AJ Bell, said: “Markets are normally good at reading the signs, but the sell-off on Wall Street last night would suggest investors had started on the Christmas sherry a bit early and were caught out by the Fed’s announcement about where rates might go in 2025.
“The Fed’s shifting narrative matters to more than just people in the US as its actions tend to influence investor sentiment globally. If the Fed is now playing the ‘rates higher for longer’ game, it suggests to investors in the UK that the Bank of England will do the same.
“That’s why housebuilders were among the biggest fallers on the FTSE 100, alongside economically sensitive stocks such as packaging groups Mondi and DS Smith, together with banks Barclays and NatWest.”
