Bank of England economy warning sends London markets lower

London markets were dragged lower today by the Bank of England warning the UK economy is headed for a tough time over the coming year.

The capital’s premier index shed nearly three per cent to close at 7,025.47 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, tumbled 1.49 per cent to 18,315.31 points.

Threadneedle Street said today the UK economic outlook has severely “deteriorated” as a result of global supply shocks and Russia’s invasion of Ukraine sending inflation to a four decade high of 9.1 per cent. It is expected to top 11 per cent in October.

Experts at Goldman Sachs have warned Britain is more likely than the US and Europe to drop into recession. 

Investors have already been pricing in the risk of a recession this year and have been ditching stocks since the beginning of the year, but the Bank’s warning added to their fears, prompting today’s sell off.

The Bank also raised the proportion of money banks need to keep in reserve, sending FTSE 100-listed lenders lower.

Barclays finished down 5.17 per cent, while Britain’s biggest bank HSBC shed 3.24 per cent. Britain’s biggest mortgage lender Lloyds fell over two per cent.

Retailers also suffered losses today after Sainsbury’s boss Simon Roberts warned “the pressure on household budgets will only intensify over the remainder of the year”.

Primark owner Associated British Foods lost 4.41 per cent. 

Oil giants BP and Shell, which represent a large share of the FTSE 100, each fell more than seven per cent.