The FTSE 100 ended lower on Thursday as investors digested a more hawkish-than-expected message from the US Federal Reserve, while the Bank of England’s decision to leave interest rates unchanged did little to improve sentiment.
London’s blue-chip index closed down 1.0% at 10,399.70, with the FTSE 250 also finishing in negative territory, slipping 0.2% to 23,330.72.
Attention remained focused on the Federal Reserve after policymakers voted on Wednesday to leave the federal funds rate unchanged at 3.50% to 3.75% for a fourth consecutive meeting.
While no change in borrowing costs had been expected, markets were unsettled by updated projections showing officials no longer anticipate a rate cut this year.
Of the 18 members of the Federal Open Market Committee, nine now expect rates to rise before year-end, eight see no change and only one forecasts a cut. The shift caught investors off guard and triggered a sell-off on Wall Street, where the S&P 500 lost 1.2% and the Nasdaq Composite fell 1.3%.
The prospect of tighter US monetary policy forced investors to rethink expectations that interest rate cuts were approaching, creating a more cautious backdrop for global equities.
The Bank of England meanwhile voted 7-2 to keep Bank Rate at 3.75%, extending a run of unchanged decisions throughout 2026. The last adjustment came in December when rates were reduced by a quarter percentage point.
Chief Economist Huw Pill again argued for a 25 basis point increase and was joined by external policymaker Megan Greene. Governor Andrew Bailey said he was comfortable maintaining current policy, although he acknowledged that inflation risks remain tilted to the upside.
Despite the cautious tone from central banks, European markets proved more resilient. Paris’s CAC 40 gained 0.4%, matching a 0.4% rise for Frankfurt’s DAX 40.
US markets also recovered some ground on Thursday, helped by a sharp decline in oil prices after a diplomatic breakthrough between Washington and Tehran.
The Dow Jones Industrial Average was up 0.3%, the S&P 500 was up 1%, and the Nasdaq Composite rose 1.9%.
Brent crude fell to $77.04 a barrel from $80.11 at the previous London close after Iran agreed to dilute its enriched uranium stockpile in exchange for significant economic relief.
The agreement was formalised when US President Donald Trump signed a memorandum of understanding alongside French President Emmanuel Macron during a dinner at the Palace of Versailles following the G7 summit.
Among individual movers in London, Persimmon dropped 6.2%, Land Securities fell 3.7%, British Land lost 2.6% and 3i shed 2.5% as the shares traded ex-dividend.
Tesco declined 2.0% after reporting first-quarter sales of £16.83 billion. Like-for-like sales in its core UK business increased 1.8%, below analysts’ expectations of 2.3%, while growth at its Booker wholesale division disappointed with a 3.2% decline. Stronger performances in Ireland and Central Europe were not enough to offset concerns over the weaker-than-expected UK and wholesale figures.
With both the Federal Reserve and the Bank of England signalling continued vigilance on inflation, investors appear increasingly resigned to the prospect that lower interest rates may take longer to arrive than previously hoped.