European stock markets started Thursday on the back foot, its third straight day in the red, as traders await another interest rate decision from the Bank of England.
In London, the FTSE 100 (^FTSE) fell 1.4% after opening, hovering near a two-week low, while the CAC (^FCHI) tumbled 1.3% in Paris, and the Frankfurt DAX (^GDAXI) was also 1.3% lower.
The City is widely expecting a rise by a quarter of a percentage point in from Threadneedle Street, its 14th consecutive increase, as it battles runaway inflation. This will take UK interest rates to 5.25%, a fresh record high since the 2007-08 financial crisis.
“The fly in the ointment for the Bank of England is the rather thorny issue of wage growth which has moved above core CPI, and could prompt the MPC to err towards the hawkish side of monetary policy and raise rates by 50bps, with a view to suggesting that this could signal a pause over the coming weeks as the central bank gets set to consider how quickly inflation falls back over the course of Q3,” Michael Hewson of CMC Markets said.
Read more: Bank of England set to raise interest rates to highest level since the financial crisis
He added: “Such an aggressive move would be a mistake given that a lot of the pass-through effects of previous rate increases haven’t fully filtered down with some suggesting that the Bank of England should pause. In the current environment this seems unlikely given a 25bps is priced in already.
“In a nutshell we can expect to see a hawkish 25bps as a bare minimum, and we could also see a split with some pushing for 50bps.”
Watch: How does inflation affect interest rates?
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