Sea of red as Lloyds, Barclays, HSBC, share prices dip after BoE

UK bank stocks continued their sell-off after the Bank of England (BoE) delivered a bigger rate hike than expected. The bank hiked by 50 basis points and pushed the official lending rate to 5%, the highest level in more than a decade. As I wrote here, most analysts were expecting the bank to hike by 0.25%.

BoE is facing a harder time than other central banks since UK’s inflation is more stubborn than in the UK. Data published on Tuesday showed that the country’s core inflation jumped to 6.7% in May while the broad inflation remained at 8.7%. 

This performance is in contrast with what other countries are going through. In the United States, inflation dipped to 4.0% in May while in Spain, it has dropped to below 4%. The same trend is happening across the European Union.

UK’s inflation performance is ironic because of the strong performance of the British pound. Sterling is one of the top-performing currencies in the developed countries this year. It has jumped by more than 20% from the lowest level in 2022. 

UK bank stocks continued their downward trend after the BoE decision. Barclays share price dipped by more than 2% and hit the lowest point since April this year. It has plunged by almost 10% from the highest level this year.

Lloyds share price, on the other hand, dipped by over 1.25% on Thursday and dropped to March lows. In my article on Lloyds this week, I predicted that the shares could soon plunge to about 40p. HSBC and Standard Chartered stock prices also dipped by over 1%.

UK bond yields also jumped after the BoE interest rate decision. The yield of the 2-year gilt rose to 5.25% while the 10-year jumped to 4.4%. This means that the yield curve is highly inverted, which is a sign of a recession.

Bank stocks tend to do well in periods of high-interest rates but lag when this is accompanied by elevated recession risks.