The FTSE 100 closed in the red on Thursday, but outperformed its European peers, after the Bank of England cut interest rates for the first time in over four years.
The FTSE 100 index closed down 84.62 points, 1.0%, at 8,283.36. The FTSE 250 ended down 141.48 points, 0.7%, at 21,459.23, and the AIM All-Share closed down 3.94 points, 0.5%, at 783.08.
The Cboe UK 100 ended down 1.0% at 826.39, the Cboe UK 250 closed down 0.9% at 18,683.63, but the Cboe Small Companies ended up 0.1% at 17,266.88.
The malaise spread to Europe. The CAC 40 in Paris ended down 2.1%, while the DAX 40 in Frankfurt ended down 2.3%.
In New York, at the time of the London close, the DJIA was down 1.3%, the S&P 500 index was down 0.9%, and the Nasdaq Composite was down 1.3%.
US markets had initially prospered but conceded early advances as figures showed the US manufacturing sector contracted in July, raising fears of an economic slow down across the pond.
The ISM PMI fell to 46.8 in July from 48.5 in June.
This was led by a worsening contract in new orders, while production also continued to decline. Prices continued to rise, however, and backlog remained at the same level of contraction.
‘Demand remains subdued, as companies show an unwillingness to invest in capital and inventory due to current federal monetary policy and other conditions. Production execution was down compared to June, likely adding to revenue declines, putting additional pressure on profitability. Suppliers continue to have capacity, with lead times improving and shortages not as severe,’ ISM committee chair Timothy Fiore noted.
In addition, the S&P Global US manufacturing purchasing managers’ index fell to 49.6 points in July from 51.6 in June. It was a touch above the flash estimate of 49.5.
Thomas Ryan at Capital Economics said the further decline in the ISM index raises the risk that GDP growth will ‘lose momentum in the third quarter....and will ’add to concerns that the Fed has left it too late to begin loosening policy.‘
On Wednesday, the Federal Reserve left interest rates unchanged but set the scene for a cut in September.
Back in London, stocks had climbed after the Bank of England cut bank rate citing progress in lowering inflation.
At its August meeting, the BoE’s Monetary Policy Committee voted 5-4 to cut bank rate by 25 basis points to 5.00%. In its previous seven meetings, it had voted to keep bank rate at the 16-year high of 5.25%.
‘It is now appropriate to reduce slightly the degree of policy restrictiveness. The impact from past external shocks has abated and there has been some progress in moderating risks of persistence in inflation,’ the BoE said in a statement.
The BoE noted there had been a ‘normalisation’ in inflation expectations, and forward-looking indicators point to ‘waning wage and price pressures’.
It did, however, play down hopes for more near-term cuts. ‘We need to make sure inflation stays low. We will not cut rates too much or too quickly’.
Kallum Pickering at Peel Hunt said while the the small reduction will not have a material direct positive impact on economic activity, it is symbolically important.
‘It marks the end of the aggressive tightening cycle that the BoE had to undertake in 2022 and 2023 in response to surging inflation. Today’s cut will likely reinforce expectation of future cuts, which may support household confidence and risk taking in financial markets,’ he noted.
He expects the BoE to hold at its next meeting in September before cautiously lowering the Bank Rate again in November.
‘But this near-term path is uncertain,’ he stressed.
The pound was quoted at $1.2771 at the London equities close Thursday, lower compared to $1.2844 at the close on Wednesday. The euro stood at $1.0787 at the European equities close Thursday, down against $1.0826 at the same time on Wednesday. Against the yen, the dollar was trading at JP¥150.09, down compared to JP¥150.36 late Wednesday.
In the FTSE 100, banking stocks retreated after the US data and as the UK rate cut raised fears margins could be squeezed.
HSBC fell 6.8%, NatWest fell 7.3%, Lloyds fell 5.1% and Standard Chartered fell 6.0%.
Rolls-Royce closed 6.6% higher after raising guidance and announcing plans to reinstate its payout, as the jet engine maker’s ‘transformation’ under Chief Executive Tufan Erginbilgic bears fruit.
The last time the company paid dividends was before the pandemic in January 2020.
In the first half of 2024, Rolls-Royce said pretax profit was flat at £1.42 billion compared with a year prior. Operating profit more than doubled, however, to £1.65 billion from £797 million, as operating margin rose to 18.6% from 10.6% a year before.
Revenue climbed to 18% £8.86 billion from £7.52 billion.
German bank Berenberg said the first-half results were ‘much better’ than the market expected. It said there was ‘plenty for the bulls to like [and] little for the bears to pick on’.
Retailer Next advanced 8.3% after an expectation-topping second quarter of sales, shaking off a soggy start to the Great British summer.
In the 13 weeks to July 27, full price sales rose 3.2% on-year, ‘exceeding our expectations by £42 million’, Next said.
It had predicted second-quarter full price sales would fall 0.3% during the quarter, ‘given the exceptional summer last year’.
Deutsche Bank said upgrades from Next happen ‘come rain or shine’.
‘Overall investor expectations were subdued on the UK part of the business given weather, peer commentary, Kantar and credit card data but the International business is harder to forecast and the size of the beat here was unexpected.’
Smith & Nephew rose 6.8%.
The Watford, England-based medical technology company said pretax profit rose by 20% to $253 million in the half-year that ended June 29 from $211 million a year before, as trading profit jumped 13% to $471 million from $417 million.
Chief Executive Officer Deepak Nath said: ‘Across the majority of Orthopaedics, which was our underperforming business unit, we are now consistently achieving growth rates well above historical levels.’
But Melrose was punished for trimming 2025 sales guidance by £200 million, despite leaving other guidance unchanged.
Shares fell 13%. The Birmingham-based aerospace outfit blamed the cut on industry-wide supply chain challenges and disposals.
Shares in Coats Group jumped 13% after it cited a recovery in the footwear and apparel sectors as it said it is confident to deliver further strong profit growth set to beat current market expectations.
The group raised its interim dividend by 15% to 93 cents from 81 cents a year prior.
Wizz Air nosedived 20% after a disappointing first quarter.
In the first-quarter ended June 30, total revenue improved 1.8% to €1.26 billion from €1.24 billion a year prior.
It reported a €4.5 million pretax loss, however, swinging from profit of €67.1 million.
Brent oil was quoted at $80.48 a barrel at the London equities close Thursday, up from $80.37 late Wednesday.
Gold was quoted at $2,448.60 an ounce at the London equities close Thursday, higher against $2,423.09 at the close on Wednesday.
Friday’s economic calendar sees the US jobs report at 1330 GMT.
Results from British Airways owner International Consolidated Airlines are also due.
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