By Basant El-Faramawy
The Bank of England raised interest rates by 25 basis points to 4.00% on Thursday, delivering a hawkish signal that sent US equities tumbling and erased early gains in London. The FTSE 100 closed down 46.55 points, or 0.4%, at 10,782.66 after earlier trading as high as 10,948.24.
Bank of England delivers hawkish rate hike
The Monetary Policy Committee voted 8-1 for the increase, the first since August 2023, as rising energy prices threaten to push UK inflation to around 5.0% by mid‑2025. Catherine Mann dissented, favouring a 50‑basis‑point move to 4.25%. Governor Andrew Bailey warned that a prolonged Middle East conflict could embed inflationary pressures, potentially requiring further hikes, though he stressed a long tightening cycle is not inevitable.
US markets tumble on tech and spending fears
US stocks plunged around the London close, with the Dow Jones Industrial Average down 2.2%, the S&P 500 2.9% lower and the Nasdaq Composite slumping 3.7%. Investors feared a Democratic midterm victory would curb data‑centre spending that has fuelled AI‑related shares. Chipmakers AMD, Nvidia and Intel fell 13%, 6.7% and 4.9% respectively, while Goldman Sachs and JPMorgan Chase dropped 5.8% and 3.1%. Tesla and SpaceX also slid sharply.
European markets mixed
In Europe, the CAC 40 in Paris rose 0.3% while the DAX 40 in Frankfurt fell 0.4% after hitting a record high. London’s FTSE 250 ended 0.9% lower at 24,701.98 and the AIM all‑share shed 0.5%.
Currency and commodity moves
Sterling firmed to $1.3473 and €1.2001. Brent crude eased to $97.34 a barrel. Gold rose to $4,116.08 an ounce, lifting miners such as Endeavour Mining, the FTSE 100’s top performer. US Treasury yields declined, with the 10‑year at 4.84% and the 30‑year at 5.25%.
Corporate earnings drive individual moves
Diageo gained 3.2% after reporting stronger‑than‑expected quarterly sales of $4.93 billion and reiterating full‑year guidance. Next rose 2.5% as it kept profit guidance unchanged despite a 8.1% jump in full‑price sales, driven by international online growth of 32%. Coca‑Cola HBC plunged 18% after reports that its Russian subsidiary faces a request for external management, echoing similar actions against other consumer‑goods firms in Russia.
Analyst views on rate path
ING economist James Smith called the BoE decision “more hawkish than expected” and sees further hikes in December and February. Deutsche Bank’s Sanjay Raja expects only one more increase to 4.25%, citing minimal second‑round inflation effects. Peel Hunt’s Kallum Pickering highlighted four factors – UK activity, Middle East war, services prices and pay growth – and noted markets price a 51% chance of a December hike.
