Markets fall further after Bank of England and ECB crank rates higher

London’s top markets and sterling both slipped on Thursday after the Bank of England and the European Central Bank hiked interest rates further.

The decision by both central banks to increase rates by 0.5 percentage points showed continued appetite for rate increases despite some signs of cooling inflation.

Pressure on European markets grew even further later in the session after surprisingly hawkish comments from ECB president Christine Lagarde.

Ms Lagarde provided a bleak outlook for the economy and indicated the bank is likely to implement one percentage point of further rises by March.

Michael Hewson, chief market analyst at CMC Markets UK, said: “European markets have seen big falls in the aftermath of today’s European Central Bank rate meeting, where president Christine Lagarde delivered the market equivalent of a bah humbug moment to all of that pre-market Christmas optimism, that the ECB wouldn’t dare risk a melt up in rates heading into 2023.

“Expectations got a reality check today with a 50bps (basis point) rate hike and a bleak economic assessment of what was likely to come next year, and what the ECB intended to do about it in the coming months.”

The FTSE 100 finished the day down 69.76 points, or 0.93%, at 7,426.17.

Across the Channel, the Dax declined 3.23% by the end of the session and the French Cac finished 3.18% lower.

In the US, markets took their cues from Europe to plunge sharply on the opening bell while tech stocks also had a poor showing, led by the likes of Nvidia and Netflix.

In currency, the distressed economic picture in Europe handed the dollar some welcome respite.

The pound was down 1.68% against the dollar at 1.222, and was 1.2% lower against the euro at 1.148 at the close.

The price of oil slipped amid concerns over what the bleak economic outlook could mean for demand over the next two years.

Brent crude oil decreased by 2.13% to 80.94 US dollars per barrel when the London markets closed.

In company news, outsourcer Serco saw its shares drop by 1.8% despite saying it expects profits to be higher than previously thought this year.

The company said that full-year underlying trading profit will reach around £235 million, an increase of £5 million compared with previous guidance.

It is the second time this year that the company hiked its profit guidance.

Meanwhile a loss for retailer Currys saw the business’s shares drop sharply, closing down 5.7% by the end of play.

The business said that its full-year profits will be lower than previous expectations, blaming the cost-of-living crisis. Customers are choosing to buy cheaper items as they tighten their belts.

Meanwhile lower demand from customers meant that competitors slashed their prices.

The biggest risers on the FTSE 100 were IAG, up 2.78p to 134.06p, Berkeley Group, up 53p to 3,867p, Barratt Developments, up 4.8p to 408.4p, Taylor Wimpey, up 1.15p to 103.4p, and Pearson, up 8.4p to 921.4p.

The biggest fallers on the FTSE 100 were Ocado, down 28.6p to 660p, DS Smith, down 12.5p to 313.8p, Segro, down 29p to 795p, AB Foods, down 57p to 1,572p, and Barclays, down 5p to 155.2p.