London open: Stocks drop after hawkish Fed minutes

London stocks slid in early trade on Thursday following hawkish Federal Reserve minutes.

At 0830 GMT, the FTSE 100 was down 1.1% at 7,435.72.

Overnight, the latest minutes form the Fed revealed that it may raise rates sooner than expected to tackle rising inflation.

CMC Markets analyst Michael Hewson said: "What appears to have spooked markets is talk about balance sheet reduction, and it is this that has prompted a quite a bit of anxiety with some on the FOMC talking about the probability of when it might be appropriate to reduce the size of the balance sheet, thus pulling liquidity out of the market.

"This appears to have caught markets off guard, prompting concerns over tighter liquidity conditions. While this might be a valid concern, speculation that the Fed might start doing this seems a little premature given that the Fed hasn’t stopped adding to its balance sheet yet, let alone reducing it.

"A number of Fed officials seemed quite keen to start discussions about how to go about reducing the size of the balance sheet after rate rises began, prompting concern that the Fed might start to go too quickly in normalising policy. This appears to have spooked investors, however talking about a policy change remains some way away from implementing it. It would be surprising if the Fed were to start reducing the size of its balance sheet so soon after ending its bond buying program. That would suggest a degree of panic at a time when inflation pressures are starting to show some early signs of easing if this week’s prices paid numbers, are any guide."

In equity markets, clothing retailer Next was on the back foot despite lifting full-year profits guidance and announcing a special dividend after Christmas sales exceeded expectations, driven by people buying more formalwear.

The company, which habitually under-promises and over-delivers, said full price sales in the two months to December 25 were up 20% compared with pre-pandemic 2019 - £70m ahead of previous guidance. It increased annual pre-tax profit guidance by £22m to £822m.

Bakery chain Greggs was also in the red as it said the full-year outcome looked set to be "slightly ahead" of its previous expectations, and announced that retail and property director Roisin Currie will succeed long-serving chief executive Roger Whiteside.

Dr Martens tumbled after private equity firm Permira sold 65m shares in the iconic bootmaker in a placing.

On the upside, discount retailer B&M European Value Retail gained after it said full-year profits were set to be above analyst expectations following a "strong" performance over the Christmas period.