Mounting Bank of England rate hike speculation weighs on London markets

Mounting speculation that strong jobs figures will coax the Bank of England into hiking interest rates next month weighed on London markets this morning.

The capital’s FTSE 100 index pulled back 0.16 per cent to 7,340.28 points, while the mid-cap FTSE 250 lost 0.10 per cent to dip to 23,598.73 points.

Experts are stepping up wagers on the Bank of England hiking interest rates next month after fresh data from the Office for National Statistics (ONS) indicated the potential worst side-effects of the furlough scheme ending had been averted.

The Old Lady had stressed at its previous meeting that it did not want to raise borrowing costs until it had more visibility over the strength of the labour market.

Higher borrowing costs tend to knock equity markets due to investors increasing the discount rate on firms’ future earnings. 

Tighter monetary policy also reduces the amount of money sloshing around the financial system, leaving investors with less firepower to deploy in markets.

Cambridge-based cybersecurity security firm Darktrace once again led the FTSE 100 lower, plunging more than 2.70 per cent.

Retailers fed into the FTSE’s poor performance, with the likes of Next, Tesco and Sainsbury’s dropping more than one per cent.

Meanwhile, on the mid-cap FTSE 250, OXO cube manufacturer Premier Foods was the worst performer, dipping 5.60 per cent.

The pound gained ground on the greenback, strengthening 0.32 per cent to buy $1.3461.