UK stocks declined sharply on Wednesday as investor risk appetite was scaled back after a more-hawkish-than-expected Inflation Report from the Bank of England (BoE).
Following recent data which showed a sharp fall in consumer price inflation and declining unemployment, the BoE said that the 7% threshold for the jobless rate - the point at which it will begin to re-assess current monetary policy - could be breached a year earlier than previously planned. It also raised its economic growth assumptions for 2014 and 2015.
Despite the positive revisions, the FTSE 100 finished 96.79 points lower at 6,630, its worst closing level since October 18th when it finished at 6,622.58.
David Madden, Market Analyst at IG, said it seems "the days of rock-bottom interest rates may be coming to an end sooner than initially anticipated, and the London equity market is off over 1% as a result".
"The drop in unemployment and increased growth guidance from the BoE implies that the quantitative easing gravy train may be reaching the end of its journey. When [Mark] Carney took over as governor of the BoE in July, he suggested that interest rates would remain unchanged for three years; now a rate change could happen within 18 months," Madden said.
Howard Archer, Chief UK & European Economist at IHS Global Insight, agreed that the message from the BoE was that it remained in no hurry to hike rates. Nevertheless, Archer said he favours a gradual increase in rates beginning in the "latter months of 2015". "Meanwhile, any further quantitative easing now looks highly improbable".
Markets were also reacting to an underwhelming Communist Party meeting in China which lacked certain details on reforms. Comments from European Central Bank member Peter Praet were also in focus after he suggested that negative interest rates or asset purchases were still possibilities to boost inflation.
Source: LiveCharts
Following recent data which showed a sharp fall in consumer price inflation and declining unemployment, the BoE said that the 7% threshold for the jobless rate - the point at which it will begin to re-assess current monetary policy - could be breached a year earlier than previously planned. It also raised its economic growth assumptions for 2014 and 2015.
Despite the positive revisions, the FTSE 100 finished 96.79 points lower at 6,630, its worst closing level since October 18th when it finished at 6,622.58.
David Madden, Market Analyst at IG, said it seems "the days of rock-bottom interest rates may be coming to an end sooner than initially anticipated, and the London equity market is off over 1% as a result".
"The drop in unemployment and increased growth guidance from the BoE implies that the quantitative easing gravy train may be reaching the end of its journey. When [Mark] Carney took over as governor of the BoE in July, he suggested that interest rates would remain unchanged for three years; now a rate change could happen within 18 months," Madden said.
Howard Archer, Chief UK & European Economist at IHS Global Insight, agreed that the message from the BoE was that it remained in no hurry to hike rates. Nevertheless, Archer said he favours a gradual increase in rates beginning in the "latter months of 2015". "Meanwhile, any further quantitative easing now looks highly improbable".
Markets were also reacting to an underwhelming Communist Party meeting in China which lacked certain details on reforms. Comments from European Central Bank member Peter Praet were also in focus after he suggested that negative interest rates or asset purchases were still possibilities to boost inflation.
Source: LiveCharts
