The pound, FTSE 100, and FTSE 250 declined after data revealed that the UK economy unexpectedly contracted by 0.3% in April. Investors on global markets reacted to concerns about rising US inflation and the possibility of interest rate hikes.
Concerns about inflation and decelerating economic growth have precipitated a severe decline in the financial markets.
The FTSE 250 fell to its lowest level in three months on Monday following the release of data indicating that the UK economy unexpectedly contracted by 0.3% in April.
The domestic mid-cap index was down 2.6%, while the FTSE 100, which is comprised of the UK’s largest listed companies, was down 1.5%.
It was the fifth consecutive losing session for both indices.
The pound fell to $1.21, its lowest level against the dollar since May 2020.
To combat inflation, the Bank of England is expected to raise interest rates by 0.25 percent to 1.25 percent on Thursday, increasing the cost of borrowing for households and businesses.
The situation was even worse in the United States, where the S&P 500 entered bear market territory after falling more than 20% below its record set earlier this year.
Its decline of 3.2% reflected the first opportunity for investors to trade after the weekend, reflecting on Friday’s news that US inflation reached 8.6% in May.
The unexpectedly high number, fueled by rising energy and food prices, dashed hopes that inflation had peaked.
The fear that the Federal Reserve, the US central bank, will continue to raise interest rates was sparked by soaring US prices.
On Wednesday, rates could rise by three-quarters of a percentage point for the first time since 1994, according to rising rumors.
Higher interest rates can be problematic for investors because they increase the cost of borrowing.
In early trading, the Dow Jones Industrial Index was down as much as 2.7%.
At 2.50 p.m. Eastern (7.50 p.m. UK), the index was still down 2.1 percent, while the Nasdaq composite was down 1.45 percent.
In Europe, the German DAX declined by 2.4%. The French CAC 40 index fell 2.6%.
In Asia, indexes fell by at least 3 percent in Seoul, Tokyo, and Hong Kong, as rising COVID-19 cases and tighter restrictions in China stoked investor anxiety.
