Britain’s stocks ended lower on Tuesday, dragged down by energy and mining shares on fears that more aggressive interest rate hikes from central banks will lead to a global economic downturn.
The blue-chip FTSE 100 index fell 0.9% to record its worst day in almost seven weeks.
The pound also fell to its lowest levels in more than two years as the energy crisis renewed recession fears in Britain. Inflation could exceed 20% in Britain early next year if spiraling gas prices fail to come down, economists from U.S. investment bank Goldman Sachs warned.
“When risk aversion picks up where people worry about recession, you see sterling and equities fall together,” said Patrick Armstrong, CIO at Plurimi Wealth.
A survey showed Britain’s services businesses reported a record increase in costs over the past three months and are downbeat about the future, as inflationary headwinds look set to squeeze demand further.
Oil major BP lost 2% after lifting the resource-heavy FTSE 100 earlier in the session. Crude prices fell about $4 a barrel on fears of an inflation-induced weakening of global economies.
Miners including Glencore and Rio Tinto dropped about 3% as metal prices came under pressure from a stronger dollar.
Rate-sensitive banks advanced 0.9% as Britain’s two-year government bond yields briefly leapt by as much as 25 basis points to their highest since October 2008.
The domestically focussed mid-cap index slipped 0.1%.
Shares of Bunzl Plc fell 6.1% even as the British business supplies distributor raised its 2022 group operating margin outlook.
“Although it raised its operating margin outlook, it is still expected to fall in the full year versus 2021,” said Victoria Scholar, head of investment at Interactive Investor.
(Reporting by Bansari Mayur Kamdar, Johann M. Cherian and Aniruddha Ghosh in Bengaluru; Editing by Krishna Chandra Eluri, Sherry Jacob-Phillips and Tomasz Janowski)