UK stocks slip as rate hike worries grip investors

© Reuters. A trading screen is seen following the opening of the markets by British Chancellor of the Exchequer Philip Hammond and Chinese Vice-Premier Hu Chunhua at the London Stock Exchange in London, Britain June 17, 2019. REUTERS/Henry Nicholls/Pool/Files

By Sruthi Shankar and Shashwat Chauhan

(Reuters) – The UK’s FTSE 100 closed lower on Monday, as upbeat U.S. economic data last week sparked fears of further monetary tightening and as a top Bank of England (BoE) official voiced concerns that rates need to stay higher for longer.

The blue-chip FTSE 100 fell 0.8% after briefly hitting a new record high in the previous session, while the domestically-focused FTSE 250 recorded a near 1% drop after climbing to an eight-month peak last week.

Nearly all major sectors finished in the red, but precious metal miners eked out a meagre rise of 0.7%.

China-exposed financial services firm Prudential (LON:PRU) fell nearly 5% on concerns around elevated Sino-U.S. geopolitical tensions.

Globally, stocks wilted and government bond yields rose after last week’s upbeat economic data from the United States and other economies lessened the risk of recession, but also suggested rates might have to be hiked further.

“Markets are pricing some cuts this year and I think that is not going to work, that’s not going to be what transpires, so there is room for downside from here for equities,” said Vivek Paul, UK chief investment strategist at BlackRock (NYSE:BLK) Investment Institute.

BoE rate-setter Catherine Mann backed further increases in interest rates and warned that pausing risked a confusing “policy boogie” if it turned out rates would need to rise again.

The Bank of England delivered its 10th straight interest rate hike last week and signalled the tide was turning in its battle against high inflation.

Data on Monday showed Britain’s construction sector had its worst month in almost three years in January as rising borrowing costs hit house-building hard.

Looking ahead, the week houses some big corporate earnings, including oil major BP (LON:BP), drugmaker AstraZeneca (NASDAQ:AZN) and consumer goods maker Unilever (LON:ULVR).

Among individual stocks, Hargreaves Lansdown (LON:HRGV) fell 3.3% after Credit Suisse (SIX:CSGN) downgraded the wealth manager’s shares to “underperform” from “neutral”.