‘Confidence exits UK economy’: FTSE 100 dips below 10,000 mark
The FTSE 100 dipped below the 10,000 mark as stocks plunged on Thursday on fears the war in the Middle East was set to bring regional energy production to a halt.
Traders sold off assets en masse over the course of the day, with the FTSE 100 falling by some 2.5 per cent amid turmoil in energy markets and across safe havens.
Its lowest trading level on Thursday was 9,997.41 points.
The FTSE 250, which is more UK-dominated, fell by around two per cent while the AIM index for smaller firms dropped by three per cent.
Drops in stock prices came off the back of a surge in energy spot prices as the Brent Crude oil price briefly surged above $119 per barrel while UK natural gas futures prices hit £172.33 per therm.
This was more than double the price just before the US and Israel launched strikes on Iran, intensifying fears that UK inflation could shoot up over the coming months.
Gold prices also plunged by around 10 per cent compared to the start of the week while international markets also suffered from losses in prices, including the S&P 500 index and the Euro Stoxx 50.
The day of trading was punctured by the Bank of England’s decision to hold interest rates at 3.75 per cent as market analysts were unnerved by the Monetary Policy Committee’s “hawkish” guidance.
The MPC said in no uncertain terms it “stands ready to act as necessary” to get inflation to ease to two per cent.
Its new statement came as it revised up its inflation forecasts to three per cent for next month while Bank policymakers indicated they could opt to hike interest rates over fears that households and businesses were highly “sensitive” to price shocks.
FTSE 100 fall sparks ‘stagflation’ fears
The fresh set of warnings are a far cry from when governor Andrew Bailey suggested falling inflation was “good news” just last month, and from when Chancellor Rachel Reeves celebrated the FTSE 100 “reaching record highs” in January.
Reeves’ last public comment was a post on X saying she wanted to make the UK the “best place in the world to start, scale and grow AI companies”.
Kathleen Brooks, research director at XTB, said “confidence is rapidly exiting the UK economy” as the Bank of England was among a number of central banks “causing unprecedented volatility in the interest rate futures market”.
Brooks added: “At this point, they have not priced in the risks to growth. What happens to demand? The Bank does not seem to be prioritising the risks to growth, which could be very damaging down the line.”
Gilt yields, which reflect borrowing costs for the government, were also heavily impacted than other international bonds including US treasuries and German bunds over the day in part due to the Bank’s strong wording.
Markets also suggested there could be at least two interest rate hikes as the two-year gilt yield rose to 4.4 per cent.
Officials at the British Chambers of Commerce warned that the UK economy was heading for a “potential stagflation scenario” that could put policymakers across the Treasury and the Bank in a more perilous position.
Deutsche Bank’s Sanjay Raja said: “Put simply, rate hikes are now a real risk for the economy.
“There is now a lot of pressure for fiscal policy to respond to guard against rate hikes. Reeves’ timeline to respond has been shortened. And the prospect of rate cuts now seems like a distant memory – at least for the coming quarters.”