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FTSE 100 falls further into red as pound soars after Carney hints at rate rise

The FTSE 100 Index was down 46.56 points at 7,387.8.

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.

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(Victoria Jones/PA)

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.

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(Jonathan Brady/PA)

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.”

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