Steeper US Fed rate hike sends investors wobbling

The prospect of the world’s most influential central bank hiking interest rates by double the amount it normally does weighed on London’s top indexes today.

The capital’s premier FTSE 100 index dropped 0.9 per cent to 7,493.45 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, lost 1.47 per cent to fall to 20,219.48 points.

The US Federal Reserve was widely expected in the City and on Wall Street to send borrowing costs 50 basis points higher today, breaking with its tradition of moving rates in 25 basis point increments.

Traders were betting inflation hitting levels not seen since the early 1980s across the pound is likely to drive Fed chair Jerome Powell and co to rein in monetary policy much quicker than usual.

The move was announced after London markets closed, but investors were repositioning ahead of the announcement.

Higher interest rates tend to hit equity markets by making fixed income assets more attractive and scaling back growth prospects for companies.

The Bank of England is expected to follow in the Fed’s footsteps today and send borrowing costs 25 basis points higher, marking the fourth meeting in a row it has lifted rates.

Consumer stocks led losses in London during the morning on concerns households will cut spending in response to inflation eroding their living standards.

B&Q owner Kingfisher was the biggest faller on the FTSE 100, tumbling 4.99 per cent.

Trainer retailer JD Sports was the second biggest faller, losing 4.71 per cent.

The pound weakened 0.1 per cent against the dollar to buy $1.2484.