UK's FTSE 100 slips to one-week low after BoE raises rates

UK's FTSE indexes reversed earlier gains to hit a seven-day low on Thursday as commodity-linked stocks and banks fell after the Bank of England lifted borrowing costs to their highest levels since 2008. The central bank raised rates by an expected 25 basis points, following which Governor Andrew Bailey said the BoE will have to "stay the course" to ensure inflation falls back to its 2% target.

The pound dropped 0.3% but had little impact on the export-oriented FTSE 100 index. The benchmark was down 0.3%. "The BoE is in an increasingly tight spot," said Hussain Mehdi, macro & investment strategist at HSBC Asset Management.

"Underlying inflation is proving to be stickier-than-expected, while there is increasing concern over ongoing labour market tightness and the risk of a wage-price spiral." Rate sensitive lenders shed 1.0% by 12:10 GMT.

Energy firms and base metal miners weighed the most on the FTSE 100, down 1.5% and 2.5%, respectively. The FTSE large-cap and mid-cap indexes have hit shaky ground in May following a rebound in April, as uncertainty over the outlook for interest rates and a mixed bag of corporate earnings dented investor sentiment.

The FTSE 250 shed 0.2%, FirstGroup Plc among top losers. The transport firm tanked 6.2%, its biggest drop in eight months after the British government took temporary control of the transport firm's TransPennine Express. ITV Plc fell 4% to hit a more than four-month low, after the broadcaster reported a 10% drop in its total advertising revenue in the first three months of 2023.

HSBC Holdings Plc, BP Plc, Petershill Partners Plc, Reach PLC and Tesco Plc, fell between 2.3% and 7% as the stocks traded ex-dividend.