The Bank of England dug deep into its arsenal on Thursday and enacted an interest rate hike of 50 basis points, as Wednesday’s red-hot UK inflation reading forced its hand.
The BoE’s hike took bank rate to 5.00% from 4.50% previously. The move was somewhat of a surprise, as a 25 basis point hike was largely expected. However, Wednesday’s red-hot consumer price index data, which showed the UK’s stubborn annual inflation rate remained at a red-hot 8.7% last month, put the half-point hike on the table.
The BoE has now hiked for 13 meetings in succession. It was one of the first major central banks to enact a rate lift in the current cycle, but the UK’s sticky inflation rate means it may be among the last.
The FTSE 100 index was down 63.09 points, 0.8%, at 7,496.09. The FTSE 250 was down 124.88 points, 0.7%, at 18,446.57, and the AIM All-Share was down 5.01 points, 0.6%, at 777.61.
The Cboe UK 100 was down 0.8% at 747.79 and the Cboe UK 250 was down 0.6% at 16,187.70. Meanwhile, the Cboe Small Companies was up 0.2% at 13,804.97.
HYCM analyst Giles Coghlan said the ‘stakes have never been higher for Bank of England policymakers’.
‘The BoE is unlikely to clearly signpost how high rates will go at this stage, because the recent rapid pricing is disruptive for UK businesses and homeowners. However, investors should not rule out further hikes to come. Despite the stagflation and pain it will cause in the near-term, market expectations now see rates exceeding 6% in early 2024, and the threat of a recession looms more than ever,’ Coghlan added.
The pound initially spiked straight after the decision, rising as high as $1.2830, from $1.2727 at the London equities close on Wednesday. However, it then faded to $1.2777 around 1230 BST.
The BoE’s decision follows the Swiss National Bank raising its policy rate by 25 basis points to 1.75%, in a step down from the 50bp hike at its March meeting. The move was expected by the market, according to FXStreet-cited consensus.
The bank said the move was to ‘[counter] inflationary pressure’, which it said has ‘increased again over the medium term’.
Further rate hikes cannot be ruled out, the SNB added.
A similar rhetoric came from across the Atlantic. Fed chair Jerome Powell told a congressional hearing Wednesday that the US Federal Reserve expects to keep raising interest rates, though at a slower pace.
‘Given how far we’ve come, it may make sense to move rates higher but to do so at a more moderate pace,’ Powell told the House Committee on Financial Services.
The Federal Open Market Committee paused its aggressive campaign against inflation last week after 10 consecutive interest rate hikes, to give policymakers more time to assess the strength of the US economy.
‘Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year,’ Powell said on Wednesday.
The euro stood at $1.1006, higher against $1.0949. Against the yen, the dollar was trading at JP¥142.08, up slightly compared to JP¥142.00.
Stocks in New York were called lower. Both the Dow Jones Industrial Average and the S&P 500 index were called down 0.2%, while the Nasdaq Composite was called down 0.3%.
Leading the FTSE 100 at midday was Ocado, surged 35% to 581.37 pence, amid takeover speculation.
Online retailer Amazon.com declined to comment on whether a takeover of the online grocer and warehouse technology firm was on the cards, Reuters reported on Thursday.
The Times had earlier reported ‘talk’ that US tech companies such as Amazon were considering an offer of £8-a-share.
‘[Ocado] shares have been about as flat as an open bottle of lemonade since the pandemic but third parties, including reportedly Amazon, may still see value in the brand, technology and infrastructure,’ AJ Bell analyst Danni Hewson commented.
‘Ocado’s hopes of becoming an online groceries partner to businesses across the globe has only had limited success and shareholders may be open to a bidder putting them out of their misery.’
Shares in Amazon were down 0.4% to $124.39 each during pre-market trade in New York on Thursday.
Brent oil was quoted at $75.38 a barrel at midday in London on Thursday, down from $76.92 late Wednesday.
Shell lost 0.9% in London, though Morgan Stanley raised it to ’equal-weight’ from ’underweight’. BP lost 0.5%, also tracking Brent prices lower.
On London’s AIM, Falcon Oil & Gas plummeted 34%, as its A2H well underperformed.
The Dublin-based oil and gas company focused on Australia, South Africa and Hungary said its A2H well in the Beetaloo sub-basin in Australia has been flowing at 0.97 million cubic feet per day for over 50 days, and is currently producing at 0.83 mmcf/day.
It noted that flow rates are not reflective of the ‘true deliverability’ of the A2H well.
Elsewhere, Alpha Financial Markets lost 19%. It reported yearly earnings growth, but cautioned that it expects ‘increased levels of competition’ to be a feature in the short-term.
The asset and wealth management and insurance consultancy said revenue in the year ended March 31 jumped 45% to £228.7 million from £158.0 million. Pretax profit soared 73% to £25.8 million from £14.9 million.
The company lifted its final dividend by 40% to 10.50 pence per share, bringing the total payout for the financial year to 14.20p, up 37% from 10.40p.
Chief Executive Luc Baque said the company has ‘exceeded’ expectations, and achieved growth across the board, particularly in North America. Looking ahead, however, Alpha Financial said it is ‘mindful’ of economic uncertainty.
‘We have also recently seen a lengthening sales cycle and increased competition as a result of the current overcapacity in the global consulting market. This is expected to be a short-term backdrop, while the consulting market balances supply with overall demand. The medium to long-term outlook for our key client markets is positive, with the structural drivers of demand and growth remaining strong,’ the company added.
In European equities on Thursday, the CAC 40 in Paris was down 1.3%, while the DAX 40 in Frankfurt was down 0.7%.
Gold was quoted at $1,927.93 an ounce midday Thursday in London, down slightly against $1,930.37 late Wednesday.
The economic calendar has the latest US jobless claims report at 1330 BST.
Copyright 2023 Alliance News Ltd. All Rights Reserved.
