FTSE lower as Andrew Bailey warns interest rates will rise again if companies hike prices. Yui Mok/Pool via Reuters

The FTSE 100 and European stocks were lower on Friday after the Bank of England chief warned of further interest rate hikes if firms raise prices.

The FTSE 100 (^FTSE) lost 0.63% to 7,451 points at the open, while the CAC 40 (^FCHI) in Paris fell 0.71% to 7,087 points. In Germany, the DAX (^GDAXI) slipped 0.62% to 15,116.

Interest rates hike warning

The governor of the Bank of England (BoE) warned businesses risk fuelling inflation by continuing to increase prices.

Andrew Bailey warned companies that interest rates may need to be raised further if "all prices try to beat inflation".

Speaking on BBC radio 4’s Today programme, he admitted that inflation had not yet eased, after it unexpectedly rose to 10.4% in February.

"I would say to people who are setting prices — please understand, if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody," he said. "It hurts people and it particularly hurts the least well off in society."

Bailey said he had not seen evidence of companies putting up prices more than necessary but warned that policymakers would need to act if inflation looks likely to become "embedded".

Interest rates were lifted to 4.25% from 4% on Thursday after policymakers on the Bank’s nine-strong Monetary Policy Committee (MPC) voted seven to two for the quarter-point rise following a surprise jump in inflation last month.

Read more: Bank of England raises interest rates for 11th time to 4.25%

"We’ve got to get inflation down. Inflation is too high at the moment. Now we think that it will fall sharply really from the early summer throughout the rest of the year. And we’re pretty confident about that," Bailey said.

"But it hasn’t come down yet and we had some news earlier this week which was a bit higher than we expected it to be, there were probably some temporary factors in there. But there was a message in there that we’ve not got to the point where we’re getting the sharp fall that we expect. We weren’t expecting it immediately but we’ve got to see that happen. That’s my message, that’s what lies behind the [rate] increase [on Thursday]."



Chancellor Jeremy Hunt said he supports the Bank’s decision to hike rates further as “the sooner we grip inflation the better for everyone”.

Meanwhile, retail sales increased by 1.2% in February, following a rise of 0.9% in January (revised from 0.5%) although when compared with the same month a year earlier sales volumes were 3.5% lower.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said despite the rise in retail sales it was “too soon to claim that a recovery has taken hold.”

US and Asia

Across the pond, S&P 500 futures (ES=F), Dow futures (YM=F) and Nasdaq futures (NQ=F) were all in the green as trade began in Europe.

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Wall Street finished Thursday's trading session higher during a volatile session that followed the Federal Reserve's signal on Wednesday that the central bank's rate hiking campaign may be nearing an end amid concerns about stability in the global banking system.

The Dow Jones (^DJI) rose 0.23% to close at 32,105 points. The S&P 500 (^GSPC) climbed 0.30% to finish at 3,948 points and the tech-heavy NASDAQ (^IXIC) gained 1.01% to 11,787.

On Wednesday, the Fed raised the target range for its benchmark interest rate by 0.25% as expected, bringing the range for the fed funds rate to 4.75%-5%, the highest since October 2007.

Updated economic projections from the Fed, however, suggested only one more 0.25% rate hike is likely this year, a forecast that is in-line with what the central bank said in December but a reversal from Fed chair Jay Powell's signalling earlier this month that rates would likely need to go "higher than previously anticipated."

In Asia, Tokyo’s Nikkei 225 (^N225) lost 0.13% to 27,385 points, while the Hang Seng (^HSI) in Hong Kong slipped 0.64% to 19,921. The Shanghai Composite (000001.SS) also lost ground, falling 0.64% to 3,265 points.

FTSE 100

Back in London, markets fell as doubts linger over the global banking sector, dampening risk taking in markets.

Barclays (BARC.L) lost 2.82%, NatWest (NWG.L) fell 2.61% and Standard Chartered (STAN.L) retreated 2.56%, with all three stocks among the five biggest fallers in early trading.

The pound (GBPUSD=X) lost ground after the Bank of England’s interest rate hike

Against the dollar, the pound slipped 0.3% and was heading in the direction of $1.22.

Sterling gained nearly 0.15% against the euro (GBPEUR=X), at €1.14.

Oil markets

Meanwhile, Brent crude (BZ=F) lost ground and was trading at around $75 per barrel, as recession fears continue to loom over oil markets.

Overall, oil prices looked set for a weekly rise of more than 3% on Friday as fears over further aggressive interest rate hikes from the US central bank faded.

Watch:Bank of England boss: Inflation 'far too high'

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