London's blue-chip stocks rose on Thursday, despite the Bank of England warning that the UK economy might be entering its longest recession since the 1920s, as a weaker pound boosted the index's international earners.
The central bank enacted a historic rate rise, lifting the key bank rate by 75 basis points and emulating the Federal Reserve's Wednesday hike. However, Governor Andrew Bailey's press conference tone massively contrasted with that of his US counterpart Jerome Powell, putting pressure on sterling.
The FTSE 100 index closed up 44.49 points, 0.6%, at 7,188.63. The FTSE 100 is stacked with international earners, supporting it when the pound struggles.
The more domestic-focused FTSE 250 suffered.
The FTSE 250 ended down 108.14 points, 0.6%, at 18,109.61, while the AIM All-Share lost 2.15 points, 0.3%, at 809.87.
The Cboe UK 100 closed up 0.5% at 718.27, the Cboe UK 250 ended down 0.8% at 15,512.13, and the Cboe Small Companies ended down 0.4% at 12,359.18.
In European equities on Thursday, the CAC 40 in Paris ended down 0.5%, while the DAX 40 in Frankfurt lost 1.0%.
Stocks in New York were also weaker. The Dow Jones Industrial Average traded flat at the time of the London equities close, the S&P 500 down 0.5% and the Nasdaq Composite shed 1.0%.
'We can make no promises about future interest rates. But based on where we stand today, we think bank rate will have to go up by less than currently priced into financial markets,' BoE Governor Bailey said, after the central bank lifted the benchmark interest rate to a 14-year high of 3.00%.
A majority of BoE Monetary Policy Committee members backed the increase, though two members voted for smaller increases of 50 basis points and 25 points, they were Swati Dhingra and Silvana Tenreyro, respectively.
'It might have been the hike that markets were expecting but that doesn't mean it didn't hurt. Warnings that the UK economy is facing the longest downturn in a century aren't exactly easy to swallow, even if investors do understand why the medicine is being administered.,' AJ Bell analyst Danni Hewson commented.
Sterling was quoted at $1.1184 late Thursday, lower than $1.1456 at the London equities close on Wednesday.
The BoE warned of a 'very challenging outlook' for the UK economy. The BoE expects the UK's gross domestic product to have contracted by 0.5% in the third quarter, before falling by 0.3% in the fourth.
'As a result, the UK economy is expected to remain in recession throughout 2023 and 2024 H1, and GDP is expected to recover only gradually thereafter,' the BoE said.
It would be the longest recession since the 1920s.
The pound was not the only major currency to slump against the dollar. The greenback was on the up after Federal Reserve Chair Powell struck a hawkish tone after the central bank enacted its fourth-successive 75 basis point rate rise.
US stocks markets, and the dollar, went on a tumultuous ride after Wednesday's Fed decision. Stock market investors had been hoping the Fed would make the case for a slowdown in the pace of its rate hikes, and initially, it felt like they got it.
The Fed noted that the pace of future hikes will also take into account 'economic and financial developments', as well as the lag between implementing rate lifts and the subsequent effect on inflation.
The euro and the pound surged and it was a sea of green across major US stock market benchmarks. Then Powell took to the stage for the press conference.
'Fed Chair Jay Powell pivoted from dove to hawk between the FOMC statement and press conference. The statement hinted at a slower pace of tightening, but at the press conference, Powell warned 'terminal' rates are likely to be higher than previously thought, and the actual pace of increases is less important than the destination. The dollar benefited, but we think that going forwards, growth expectations will be more important and less dollar-friendly,' Societe Generale analyst Kit Juckes commented.
The euro traded at $0.9754 late on Thursday, lower than $0.9865 late Wednesday. Against the yen, the dollar was quoted at JP¥148.24, up from JP¥147.08.
Gold was quoted at $1,625.97 an ounce late Thursday, also hurt by a stronger dollar, lower than $1,646.74 on Wednesday. Brent oil was trading at $95.21 a barrel, lower than $96.32.
Share price gains for Sainsbury's and oil and gas companies supported London's FTSE 100.
Grocer Sainsbury's rose 7.1%. It reported its half-year profit dropped, though it hailed market share growth.
Pretax profit in the 28 weeks to September 17 fell by 30% to £376 million from £527 million, the London-based supermarket chain said, blaming high inflation.
Revenue proved resilient, however, growing 4.4% year-on-year to £16.41 billion from £15.72 billion.
Sainsbury's will pay an interim dividend of 3.9 pence per share, up 22% from 3.2p a year before, and backed its annual underlying pretax profit guidance of £630 million to £690 million.
Harbour Energy added 4.9%. It posted a year-to-date rise in production and expects output in the upper half of guidance for the whole of 2022.
For the nine months ended September 30, revenue amounted to $4.1 billion, with realised post-hedging oil and UK gas prices of $80 per barrel of crude oil, compared to the average Brent price of $105 per barrel.
Production during the nine months amounted to 207,000 barrels of oil equivalent per day, representing an increase of 27% compared to a year ago. Harbour expects full-year production to be in the upper half of its 200,000 to 210,000 barrels of oil equivalent per day guidance.
Oil majors Shell and BP also rose on Thursday, adding 2.6% and 1.9%.
BT suffered, however, slumping 8.5%. The telecommunications firm said revenue rose by 0.6% to £10.37 billion in the six months to September 30 from £10.31 billion a year before. However, pretax profit dropped 18% to £831 million, from £1.01 billion.
BT upped its cost savings target to £3.0 billion from £2.5 billion by the end of 2025. It kept its interim dividend unchanged at 2.31p per share.
AJ Bell analyst Russ Mould commented: 'The broadband industry is highly competitive, and BT needs to make sure it can provide a reliable service without excessive prices that force customers to defect to rivals. That means it already faces a tough job, which is set to get even more difficult as it is forced to find more places to slash costs.'
Elsewhere in London, Longboat Energy plunged 41% after poor drill results. The North Sea-focused energy company announced drilling results at Oswig 'at the lower end of pre-drill expectations'.
In a preliminary estimate, recoverable resources at Oswig are thought to be between 10 million and 42 million barrels of oil equivalent, based on in-place volume of 100 million to 215 million barrels.
In the global economic calendar, there are a slew of services PMIs, including Japan overnight, Germany at 0855 GMT and the eurozone at 0900 GMT. There is a eurozone producer price reading at 1000 GMT, before the latest US nonfarm payrolls figure at 1230 GMT.
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