Inflation fears fuel stampede from FTSE

THE FTSE100 chalked up its worst day in four months yesterday as investors were gripped by fears of rising interest rates.

The index of leading companies slid by 2.5pc, its weakest session since late October, amid growing expectations that a sharp recovery from the pandemic could cause inflation to surge and force central banks around the world to ramp up interest rates.

Traders’ worries were most evident in the bond market, which suffered a sharp sell-off. This is usually the case when investors expect interest rates to rise, as existing bonds will become less attractive relative to newer bonds issued at higher rates.

The sell-off forced bond prices down, causing the yield – or how much interest investors receive relative to the price – to rise.

The UK 10-year gilt hit a yield of 0.8pc yesterday, its highest level since before the pandemic.

Bank of England’s chief economist Andy Haldane warned that the ‘tiger’ of inflation had been ‘stirred from its slumber’, and he added the central bank may have to hike rates sooner than expected.

The sell-off began in the US, where President Biden’s $1.9trillion stimulus package has driven inflationary fears.

The FTSE250 index of mid-sized companies slid 1.4pc, while the European Stoxx 600 was down 1.6pc and the US Dow Jones was down 0.8pc. In Asia, Japan’s Nikkei slid 4pc, China’s Shanghai Composite was down 2pc and Hong Kong’s Hang Seng index fell 4pc.

The pound was down 0.4pc against the dollar to $1.395, putting the damper on a strong rally for 2021.