Investors banked on the Bank of England holding interest rates on Thursday and the central bank did just that, though Threadneedle Street did play to the now all too familiar higher for longer narrative.
It said monetary policy will need to be ‘sufficiently restrictive for sufficiently long’.
Sterling was quoted at $1.2214 shortly after midday on Thursday, higher than $1.2123 at the London equities close on Wednesday.
The FTSE 100 index was up 91.85 points, 1.3%, at 7,434.28. The FTSE 250 was up 566.72 points, 3.3%, at 17,752.61, and the AIM All-Share was up 5.75 points, 0.8%, at 689.32.
The Cboe UK 100 was up 1.3% at 742.25, the Cboe UK 250 was up 3.5% at 15,502.19, and the Cboe Small Companies was up 0.7% at 12,712.75.
The Bank of England maintained UK interest rates at a 15-year high on Thursday, in a slightly less split vote by policymakers, as Threadneedle Street predicts inflation to ebb ‘sharply’ in the months to come.
There was also a slight caution that rates would need to remain at robust territory for longer.
The BoE kept bank rate at 5.25%. It is the second-successive hold, following one in September, which ended a streak of 14 successive hikes since December 2021. The BoE had rapidly shot up the bank rate from a Covid-19-induced low of 0.10%.
This time around, six favoured the pause, with only three backing a 25 basis point hike. There were four dissenters last time around.
The BoE said since its September decision, it has seen ‘little news in key indicators of UK inflation persistence’.
‘There have continued to be signs of some impact of tighter monetary policy on the labour market and on momentum in the real economy more generally. Given the significant increase in bank rate since the start of this tightening cycle, the current monetary policy stance is restrictive,’ the central bank said.
‘The MPC will continue to monitor closely indications of persistent inflationary pressures and resilience in the economy as a whole, including a range of measures of the underlying tightness of labour market conditions, wage growth and services price inflation. Monetary policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term.’
The BoE also set it out its latest monetary policy report containing its outlook for the UK economy.
It lowered its near-term inflation expectations, with its ‘most likely’ path predicting a fourth-quarter rate of 4.6%, trimmed from its 4.9% August prediction.
Its outlook for the fourth-quarter of next year was lifted to 3.1% however, from 2.5%. A return to below the 2% inflation target will be delivered in the fourth-quarter of 2025, though its inflation projection for that period was lifted to 1.9% from 1.6%.
‘In the Monetary Policy Committee’s latest most likely, or modal, projection conditioned on the market-implied path for bank rate, CPI inflation returns to the 2% target by the end of 2025. It then falls below the target thereafter, as an increasing degree of economic slack reduces domestic inflationary pressures,’ the BoE said.
In European equities, the CAC 40 in Paris was up 1.8%, while the DAX 40 in Frankfurt was up 1.5%.
The Bank of England decision followed the US Federal Reserve leaving interest rates unchanged on Wednesday.
In a widely expected move, the central bank unanimously agreed to hold the key federal funds rate in a target range between 5.25%-5.50%, a 22-year-high, where it has been since July.
This was the second consecutive meeting that the Federal Open Market Committee chose to hold, following a string of 11 rate hikes, including four in 2023.
The euro traded at $1.0634, higher than $1.0537. Against the yen, the dollar was quoted at JP¥150.33, down versus JP¥151.07.
Stocks in New York were called higher. The Dow Jones Industrial Average was called up 0.4%, the S&P 500 index 0.5% higher, and the Nasdaq Composite up 0.8%.
In London’s FTSE 100, BT rallied 8.9%.
In the half-year to September 30, the telecommunications firm said revenue came in broadly flat year-on-year, edging up to £10.41 billion from £10.37 billion, but pretax profit jumped 29% to £1.08 billion from £831 million.
‘Our delivery in the first half means we are confirming our financial outlook for FY24 with normalised free cash flow now expected towards the top end of the guidance range,’ said Chief Executive Officer Philip Jansen.
Sainsbury’s rose 4.5% The grocer expects underlying pretax profit to come in at the upper range of its guidance of £670 million and £700 million for its financial year, reporting ‘strong volume and market share growth’ in its first half.
In the 28 weeks ended September 16, the grocer’s group sales including value-added tax rose 2.9% annually to £18.67 billion from £18.34 billion. However, excluding fuel, they rose 7.7% to £15.81 billion from £14.67 billion. Pretax profit fell 27% to £275 million from £376 million, but was flat at £340 million on an underlying basis.
‘It’s been a while since Sainsbury’s has consistently done well, but the current management team seemed to have created a formula that works,’ said AJ Bell analyst Russ Mould.
‘Market share gains and improved sales volumes are proof that [Chief Executive Officer] Simon Roberts’ strategic focus on food is paying off.’
Shell added 2.0% as it managed to avoid the fate that befell rival BP earlier in the week as its earnings for the third quarter stayed largely in line with expectations.
The London-listed oil and gas producer said its adjusted earnings fell 34% in the three months compared with a year earlier, landing at a little over $6.2 billion.
The result was only $24 million behind expectations, unlike BP, which missed its forecast underlying replacement cost profit by around $700 million.
In the FTSE 250, OSB was the best performing stock, rising 14%.
The Chatham, England-based mortgage lender said Chief Financial Officer April Talintyre will retire after 11 years with the company, while it upgraded its guidance for 2023.
Talintyre will stay with the company until a date that has yet to be announced to confirm the transition to a new CFO.
Meanwhile, the company gave a trading update for the third quarter of 2023. OSB said organic originations were down 19% to £1.3 billion from £1.6 billion a year prior.
Statutory net loans rose 6.8% to £25.2 billion as at September 30 from £23.6 billion at December 31. Further, OSB said it substantially completed its £150 million share repurchase programme.
Helios Towers added 12%, after it said that adjusted earnings and operating profit rose, with tenancies and sites growing comfortably.
The London-based telecommunications infrastructure company said operating profit in the first nine months of 2023 surged 79% to $112.6 million from $62.9 million a year prior. Revenue climbed 31% to $533.7 million from $408.8 million.
Adjusted earnings before interest, tax, depreciation and amortisation increased 30% to $269.2 million from $206.8 million. Notably, sites rose 29% to 14,024 from 10,872, while tenancies grew 27% to 26,624 from 20,913.
On AIM, Ethernity Networks surged 20%, after the supplier of data processing semiconductor technology for networking appliances signed an extended contract for $475,000 with an unnamed ‘tier one US-based military aerospace customer’.
It had received an advance payment of $80,000 last month, and expects payments for the contract to be received during November and December, bringing the total anticipated revenue to $555,000.
Gold was quoted at $1,988.19 an ounce at midday Thursday, higher than $1,978.93 on Wednesday. Brent oil was trading at $85.84 a barrel, lower than $86.36.
Thursday’s global economic calendar sees the US unemployment insurance weekly claims report at 1230 GMT.
Already out, data showed the slump in eurozone manufacturing worsened slightly in October.
The Hamburg Commercial Bank manufacturing purchasing managers’ index fell edged down to 43.1 points from 43.4 in September, and was a touch higher than the flash estimate of 43.0.
Falling further beneath the 50-point mark that separates growth from contraction, it shows the sector deteriorated further.
Copyright 2023 Alliance News Ltd. All Rights Reserved.
