The FTSE 100 tumbled 1.6% and sterling lost ground ahead of the Bank of England’s interest rate decision, with nervousness over whether it will follow the US Federal Reserve and hike more quickly. 

The blue-chip index slid 120 points to 7,152 this morning, giving back gains made yesterday, after the Fed unveiled its largest interest rate increase in 28 years. Global markets rallied as the central bank confirmed the widely expected increase of 0.75 percentage points but UK equities were on the back foot as Threadneedle Street prepared to make its announcement.

Richard Hunter, head of markets at Interactive Investor, said market consensus was for a 0.25% interest rate increase today but ‘inevitably the Fed’s decision to move the dial more quickly has led to speculation that the increase could be one of 0.5%’

‘Having been one of the first central banks to move in an attempt to quell inflation, the monetary policy committee may not see the need for the higher hike, even if several of its members previously voted for a more aggressive increase,’ he said.

Hunter said investor interest will turn to sterling, which was down 0.7% to trade at $1.209 against the dollar this morning following a strong showing yesterday.

He said the currency has ‘been under some pressure of late, not least because of the forecast of likely tepid growth, and with a potential spat with the European Union also weighing’.

‘Such pressure could be an ironic boost for the FTSE 100, where the majority of earnings come from overseas, thus making them more valuable in the translation back into sterling,’ said Hunter.

Housebuilder Persimmon (PSN) led the blue chips lower, shedding 7.9%, or 173p, to trade at £20.22, as interest rate rises could put pressure on the buoyant housing market.

Retailers also suffered as higher borrowing costs mean consumers will have less cash to spend in the shops: JD Sports (JD) was down 6.6%, or 7p, at 103p, while Next (NXT) fell 5.6%, or 344p, to trade at £56.98.

The FTSE 250 was weighed down by sterling and jittery investors, losing 1.5%, or 303 points, to reach 19,011.

Like the main index, property took a hit, with real estate investment trust Shaftesbury (SHB) leading the mid-caps lower. Its shares shed 8.4%, or 49p, to reach 533p. Retailers were also suffering, with Sports Direct owner Frasers (FRAS) losing 7.9% to change hands at 596p and electrical goods retailer Currys (CURY) down 6.1% at 69p.

Trusts stumble

It was another difficult day for investment trust holders toughing out the bear market.

In the FTSE 100, the widely held Scottish Mortgage (SMT ) slid another 4.6% to a 25-month low of 701.4p. Private equity giant 3i Group (III ) retreated 4.2% to £10.51.

Outside the top 100 a variety of growth funds led the fallers: Baillie Gifford European Growth (BGEU ) gave up 4.8% to 79.9p; UK smaller companies trust BlackRock Throgmorton (THRG ) slid 5.6% to 543p;  Fidelity China Special Situations (FCSS ) shed 3.9% to 258.2p; and Augmentum Fintech (AUGM ) dropped 4.8% to 101.9p.