On Thursday, there was a decline in British stocks, as investors were concerned about the possibility of central banks taking a more aggressive stance toward curbing inflation. Plus, investor sentiment also took a hit because of weak commodity prices and a series of concerning forecasts from companies.
There was a 1.6% decline in the blue-chip FTSE 100 index, while a 1.2% decline was recorded in the domestically focused FTSE 120 index. Market analysts said that it was a possibility that the Bank of England could decide to become more aggressive in its monetary policy tightening.
They said that there was no doubt that inflation had reached record highs, but there had also been a sharp decline in commodity prices in recent weeks. Therefore, it should start to affect certain areas of the inflation basket now. Nonetheless, the BoE is still expected to have a hawkish stance, but they would have to decide just how hawkish they would be when it comes to raising rates.
Money markets are expecting the Bank of England to raise the interest rate by 50 basis points in its meeting scheduled for next month and there is a 72.8% possibility expected.
Even though the British economy saw a surprise expansion in May, this still did not ease worries about an overall bleak economic outlook because of increasing inflation, primarily driven by the rise in energy prices. It remains to be seen how the Bank of England will decide to tackle the matter of inflation, which is expected to reach the double digits.
The affected sectors
Mining and energy stocks weighed on the FTSE 100 the most, as they both recorded declines of 4.5% and 3.3%, respectively. This was because of a decline in commodity prices, as markets were gearing up for rapid hikes in the interest rate, which would reduce demand and slow down the economy.
There was also a 2.9% drop in banks. A 1.5% fall was also seen in Barratt Developments Plc, the largest homebuilder in Britain. This was after the company reported that home completions had been lower than expected for the 2022 fiscal year.
There was a 39.8% fall in motor insurer Sabre in small caps, which brought it to a record low. This was because it announced that inflation had resulted in more claims, which would affect its profits. There was also an 18.1% and 11.7% drop in Admiral Group and Peers Direct Line, respectively.
There was a 6.3% fall in Ashmore Group after it announced that its assets under management had declined by a whopping $14.3 billion. According to the emerging markets investment company, this was primarily because key markets had been under pressure due to increasing geopolitical tensions, and investors were spooked due to high inflation.
There was also an 18.2% decline in Playtech after a takeover offer from TTB Partners for the gambling software firm was withdrawn. The investment and advisory firm based in Hong Kong said that the challenging conditions in the market had driven it to make this decision.