London stocks set for weekly drop on recession fears; homebuilders slump

The BoE delivered a larger-than-expected 50-basis-point rate hike on Thursday following an inflation scare, with investors ramping up their bets of rates peaking at 6.1% in February and a likely recession. "BoE's 50-bps hike increases odds of a recession and inflation moving lower," analysts at Jefferies said in a note.

UK's benchmark indexes extended their slide on Friday, led by a decline in homebuilders, as investors assessed risks of a potential recession and its impact on corporate earnings following the Bank of England's outsized interest rate hike.

The benchmark FTSE 100 was down 0.3% at 0826 GMT, while the FTSE 250 mid-cap index lost 0.4%. Both indexes were on track for their worst weekly drop since the U.S. banking turmoil in March, dented by bets of policy tightening lasting for longer globally. The BoE delivered a larger-than-expected 50-basis-point rate hike on Thursday following an inflation scare, with investors ramping up their bets of rates peaking at 6.1% in February and a likely recession.

"BoE's 50-bps hike increases odds of a recession and inflation moving lower," analysts at Jefferies said in a note. "The month- and quarter-end rebalancing will see flows away from equities into fixed income, which could see some pressure on equities in the coming days." A hawkish U.S. Federal Reserve and rate hikes by major central banks on Thursday continued to bruise sentiment.

Data showed Britain's retail sales unexpectedly rose in May, suggesting most consumers were coping with sticky inflation's impact on their spending power. "Despite the hikes so far, aggregate demand is still holding up and with wages still growing strongly, the solution is increasingly looking like the corporate sector taking a hit until it is forced to shed labour," said Stuart Cole, chief macro economist at Equiti Capital.

Another set revealed services sector showed signs of a slowdown this month. Rate-sensitive homebuilders slid 2.2%, while healthcare stocks climbed following a 5.5% jump in GSK after the drugmaker reached a litigation settlement in the U.S. over its heartburn drug Zantac.

Shares of Ocado retreated 8% from Thursday's surge on speculations over a bid in the online supermarket and technology group. Audioboom Group slumped 25% after the global podcast firm's forecasts came in lower than expected.

 

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