FTSE 100 Closes Down 0.75% After Rate Hike; Ocado -2-

1148 GMT - Some investors had been speculating about a 50 basis point interest-rate rise by the Bank of England following another stronger-than-expected inflation reading on Wednesday, but this decision will come as a shock for many in the market, Luke Bartholomew, senior economist at abrdn, says in a note. "The risk for the Bank of England in causing such as surprise is they end up looking panicked and increase uncertainty about the likely future path of interest rates," the economist says. "It is increasingly difficult to see how the U.K. avoids a recession as part of the process of bringing inflation down." Policymakers clearly feel that such a large move was warranted to try to keep a lid on inflation expectations.([e-mail])

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Sterling Turns Lower After BOE Raises Rates by 50Bps

1145 GMT - Sterling falls, quickly erasing brief gains after the Bank of England raised interest rates by 50 basis points to 5.0%, against the expectations of most in the market for a 25 basis-point increase. The BOE's move follows Wednesday's higher-than-expected inflation data, with analysts saying this will likely raise concerns about potential damage to the economy as inflation remains persistently high despite a string of rate increases. "Until inflation begins coming down to more palatable levels the Bank of England will continue to put the brakes on the economy," says Richard Carter, head of fixed interest research at Quilter Cheviot. EUR/GBP is last up 0.1% at 0.8612. ([e-mail])

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BOE's Rate Rise Could Raise Recession Fears

1140 GMT - The Bank of England's decision to step up the pace of interest-rate rises Thursday is surprising and will raise concerns about the economic fallout from higher rates, Premier Miton Investors says. "The fear is that this could rapidly tip the economy into a recession, but that is obviously not deemed to be as bad an outcome as the risk of ongoing elevated inflation," Premier Miton chief investment officer Neil Birrell says in a note. Data Wednesday showed inflation seems to be more embedded in the U.K. than elsewhere, leaving the BOE with "little option than to act tough," he says. The BOE raised rates by 50 basis points to 5.0% following a 25bp rise at the last meeting. ([e-mail])

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BOE Hike Suggests Policymakers Have Been Behind the Times

1138 GMT - "The Bank of England's 50 basis-point hike of its key interest rate to 5% is a tacit admission that it has been behind the curve in its hiking policy, Huw Davies, investment manager at Jupiter Asset Management, says in note. The move is an attempt to regain the initiative and their credibility, he says. But the key problem is that U.K. real rates have consistently been negative despite the tightening cycle, with the last couple of months recording shockingly bad inflation data, Davies says. "It feels like the BOE will have to inflict more pain on U.K. households to achieve a return to a controlled level of inflation more in line with their inflation target," he adds. ([e-mail])

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FTSE 100 Drops After Bank of England Interest-Rate Rise

1136 GMT - The FTSE 100 Index compounds earlier losses after the Bank of England unexpectedly increased interest rates by 0.5 percentage points, rather than the 0.25% rise many economists had expected. London's blue-chip index drops 1.1%, or 83 points, to 7476. "The fight against inflation clearly has to step up a gear and the task now for the BOE is to get ahead of the curve once again," IG analyst Chris Beauchamp writes. In equities, Ocado surges 36% following takeover bid speculation. Premier Inn owner Whitbread drops 1.5% despite reporting strong first-quarter trading momentum. Packaging company DS Smith backtracks 1.3% after reporting trading in the year to date matching its expectations, though it said economic conditions were still volatile and box volumes remain below normal. ([e-mail])

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Alpha Financial's Weak Outlook Weighs on Shares

1127 GMT - Alpha Financial Markets Consulting may see share weakness in the short term, Peel Hunt says in a note after the provider of specialist consultancy services flagged that it sees higher levels of competition and a lengthening sales cycle hampering its outlook. Having hit an all-time high of just over 500 pence per share this week, the stock is expected to go weaker today, analyst Christopher Bamberry says. However, the structural drivers that underpin demand for the group's services remain very strong, he adds, adding that the business remains well placed to deliver good growth in the mid and long term. Shares tumble 19% at 405 pence. ([e-mail])

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Turkish Lira Turns Lower After Rate Decision

1122 GMT - The Turkish lira turns lower after Turkey's central bank raised interest rates to 15.0% from 8.5%, less than the 20% many analysts were expecting. The bank said it decided to lift rates to establish disinflation, anchor inflation expectations, and control the deterioration in pricing behavior. "Monetary tightening will be further strengthened as much as needed in a timely and gradual manner until a significant improvement in the inflation outlook is achieved." The bank will continue to take its decisions in a predictable, data-driven and transparent framework, it said. USD/TRY rises to 23.6675 after the decision, from 23.5456 beforehand.([e-mail])

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Now Isn't the Time to Buy UK Bonds Despite High Yields, Vanguard Says

1110 GMT - Now isn't the time to buy U.K. gilts as a pernicious combination of stubborn high inflation, higher global yields and political risks should limit the magnitude of any U.K. bond rally, Roger Hallam, global head of rates at Vanguard, says in a note. On top of that, the Bank of England is now pushing ahead full steam with its quantitative tightening program, he says. Hallam notes that after underperforming both U.S. and German bonds by 100 basis points since February, U.K. fixed income is receiving a lot of attention as high yields start to entice buyers. "It is true that valuations have become very appealing, the spread vs the U.S. is now as high as it was in the depth of the mini-budget crisis," he says in a note. ([e-mail])

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(END) Dow Jones Newswires

06-22-23 1214ET