FTSE 100 falls further into red as pound soars after Carney hints at rate rise
London's premier index sunk deeper into the red while the pound soared after Bank of England governor Mark Carney hinted at a potential interest rate hike.
The FTSE 100 Index was down 46.56 points at 7,387.8, with multi-national stocks feeling the heat as sterling surged 1% against the US dollar at 1.294.
The UK currency was also clocking gains versus the euro, rising 0.7% to 1.138, as Mr Carney suggested that rates could rise if wages firm and the economy is boosted by stronger business investment.
He said "some removal of monetary stimulus is likely to become necessary", but would depend on whether a drop in household spending is countered by more companies ploughing money back into their businesses.
His comments at the European Central Bank (ECB) Forum were hawkish in contrast to his Mansion House speech last week when he said "now is not yet the time to begin that adjustment".
Shares in pharmaceuticals firm Shire and drinks giant Diageo were off 114p to 4,406p and 19.5p to 2,311.5p respectively.
Some blue-chip firms, which report in US dollars or euros, can struggle on the FTSE 100 Index when the pound rises because their earnings suffer from a less favourable currency translation.
Neil Wilson, senior market analyst at ETX Capital, said: "Sterling leapt above 1.29 US dollar to its strongest in three weeks after a surprising intervention from Bank of England governor Mark Carney, while continued dollar softness offered further support.
"Seeking to clarify remarks made lately, Mr Carney said he would back a rate hike if business investment and wages started to improve.
"Coming off the back of the 5-3 split at the last meeting and hawkish comments from the Bank's chief economist, Andy Haldane, it's the clearest signal yet that the Bank is minded to tighten.
"There is a sense the MPC may wish to 'correct' its rate cut last summer in light of a surprisingly resilient UK economy and rising inflation, which is accelerating quicker than the Bank expected."
Across Europe, Germany's Dax was 0.2% lower and the Cac 40 in France slipped by 0.1%.
The price of oil was 0.9% higher at 47.05 US dollars a barrel after American crude production eased back.
In UK stocks, outsourcing firm Bunzl lifted 1% following a trading update where it said revenues would rise thanks to a boost from new business in the US.
The FTSE 100 company said half-year revenues would climb by 7% at constant currency, with underlying growth stepping up by 3% to 4% thanks to extra work secured in America last year.
Shares were up 34p to 2,343 as the company also announced deals for three businesses in Spain and Canada.
On the second tier, electricals retailer Dixons Carphone slipped back despite batting away fears of a consumer spending slowdown.
The FTSE 250 firm reported underlying pre-tax profits of £501 million for the year to April 29, up from £457 million the previous year.
Finance boss Humphrey Singer said the group was "alive to how the consumer is behaving", but it had seen "no changes yet". Shares closed down 2.2p to 293.7p.
The biggest risers on the FTSE 100 Index were International Consolidated Airlines Group up 23.5p to 630p, easyJet up 29p to 1,360p, BT up 5.6p to 294.1p, Antofagasta up 13.5p to 788p.
The biggest fallers on the FTSE 100 Index were Burberry down 61p to 1,705p, Shire down 114p to 4,406p, Hikma Pharmaceuticals down 38p to 1,478p, Hargreaves Lansdown down 31p to 1,306p.