Europe's main stock markets wavered on Thursday, with London sliding after the Bank of England announced it was hiking interest rates to a 15-year high.
With UK annual inflation stuck above 10 per cent, the BoE had been widely forecast to hike borrowing costs once more, marking the 12th increase in a row.
"The Bank of England is clearly concerned about the stickiness of UK inflation," said Shanti Kelemen, chief investment officer at M&G Wealth. "Higher interest rates will eventually reduce demand for services, but it takes time for the impact to be translated to the economy."
The Bank of England lifted the key interest rate by a quarter-point to 4.5 per cent, the highest level in almost 15 years.
The Bank of England is clearly concerned about the stickiness of UK inflation- Shanti Kelemen, chief investment officer at M&G Wealth
The FTSE 100 in London slid after the news, dropping into the red after earlier gains.
"UK inflation remains stubbornly high," noted Victoria Scholar, head of investment at Interactive Investor. This is "at odds with the US and Europe which have seen their inflation rates start to come down".
Official data on Wednesday showed US inflation had dipped further, though only marginally, from 5.0 per cent in March to 4.9 per cent in April. The US consumer price index reading was the lowest in two years and a tad below what was expected, possibly giving the Fed a little room to take a break in its long-running rate hike campaign.
However, the figure came after last week's stronger than expected print on US jobs creation that showed the world's top economy remained strong, while observers said further evidence was needed to show that rate hikes were bearing fruit.
The April figure was far above the Fed's stated goal of two per cent, which some analysts said meant it was unlikely officials would consider cutting rates at the end of the year, as some investors had been betting on.
This helped to support the dollar against major rivals on Thursday.
"We need more... prints to clarify that inflation is definitely declining," said Priya Misra at TD Securities.
Still, Wall Street largely cheered the latest data, with the S&P 500 and Nasdaq rallying on Wednesday, helped by a bump in rate-sensitive tech giants.
Investors are also tracking the political battle over raising the US debt ceiling, with Democrats and Republicans unable to reach a deal just weeks before the country runs out of cash to pay its bills.