The FTSE 100 edged lower on Thursday as the Fed inspired sell-off in the US dragged London’s blue-chip index into the red.
Global stocks fell on Wednesday and continued into Thursday after the US Federal Reserve raised interest rates and indicated that it will tighten monetary policy despite an increasingly gloomy economic outlook.
The FTSE 100 closed down 54.01 points, or 0.8%, at 6,711.93.
CMC Market’s David Madden said: “European equity markets are in the red but they are off the lows of the session. The tightening of monetary policy, and the projection of further tightening to come from the Federal Reserve yesterday, has hurt investor sentiment.
“The US central [bank] hiked rates by 0.25% – meeting forecasts, and they cautioned about lower growth and inflation, while at the same time suggesting two more hikes are in the pipeline for 2019. Traders are worried the US central [bank] will press ahead with monetary tightening plans against a softer economic backdrop.”
Elsewhere, the Bank of England’s monetary policy committee voted unanimously to hold interest rates at 0.75% as it warned that Brexit uncertainty had “intensified considerably” in the past month.
Fiona Cincotta, senior market analyst at City Index, said: “The Bank (or anybody else) has no idea whether the UK will leave the EU with a deal or in a disorderly fashion. Given the elevated levels of uncertainty, the central bank didn’t give indication as to how recent data was shaping monetary policy.”
The pound, meanwhile, was higher on strong UK retail sales data and US dollar weakness.
Sterling was up 0.28% against the US dollar at 1.264 and flat versus the euro to 1.107 at the London market close.
In corporate news, troubled gas and electricity supplier Yu Group sparked another hefty share price drop after it warned over a further profit hit following “serious” accounting failures.
The group, which alerted in October over a £10 million knock to profits after unearthing accounting irregularities, said it now expects an extra impact of between £2.75 million and £3.25 million following the results of an independent probe.
Yu shares closed down 10.5p at 68p.
Kier Group said nearly two-thirds of its investors snubbed a rights issue aimed at raising £250 million, leaving a syndicate of banks nursing a £100 million headache.
The construction giant had proposed to offer 64.5 million new shares at 409p each, but on Thursday Kier said it had received just 37.7% of acceptances.
Kier shares fell 6.2p to 391.2p.
Bus and rail giant Stagecoach agreed to sell its under-pressure US business in a deal valuing the division at 271.4 million US dollars (£214.4 million).
It comes just weeks after Stagecoach first revealed talks to sell the North American arm after an £85.4 million writedown in the division sent the group tumbling to a half-year loss.
Stagecoach shares were down 2.6p to 135.2p.
Germany’s DAX was down 1.44% and France’s CAC 40 declined 1.72%.
A barrel of Brent crude, the international benchmark, was trading down 2.2% at 55.44 US dollars (£43.85).
The biggest risers on the FTSE 100 were Smurfit Kappa up 74p to 2,088p, Severn Trent up 53p to 1,873p, National Grid up 18.6p to 796p, and Fresnillo up 15p to 845p.
The biggest fallers on the FTSE 100 were Carnival down 471p to 3,877p, Scottish Mortgage Investment Trust down 18.45p to 459.15p, Antofagasta down 29p to 757p, and Micro Focus International down 50.5p to 1,355p.