23rd Mar 2023 17:09
(Alliance News) - Stock prices in London closed lower Thursday despite hopes today's rise in interest rates by the Bank of England will be the last for now.
The FTSE 100 index closed down 67.24 points, 0.9%, at 7,499.60. The FTSE 250 ended down 27.83 points, 0.2%, at 18,729.96, but the AIM All-Share closed 3.29 points higher, or 0.4%, at 807.44.
The Cboe UK 100 ended down 0.9% at 750.36, the Cboe UK 250 fell 0.1% at 16,302.08, and the Cboe Small Companies rose 0.1% at 13,333.76.
In European equities on Thursday, markets were mixed. The CAC 40 in Paris gained 0.2% but the DAX 40 in Frankfurt ended flat.
Stocks in New York soared, recouping most of yesterday's falls at the time London equities close, with the Dow Jones Industrial Average up 1.1%, the S&P 500 surging 1.3% and the Nasdaq Composite jumping 2.0%.
The Bank of England increased interest rates by 25 basis points to 4.25%, despite the turmoil that has engulfed the banking sector in recent weeks.
The rise, which was in line with market expectations, comes a day after figures showed that the annual rate of inflation climbed to 10.4% in February, from 10.1% in March.
It is the 11th consecutive increase from the bank, which started this rate hike cycle in December 2021.
But the BoE left its options open on whether to raise interest rates any further in future meetings, saying this would depend on the emerging evidence, and that the financial and economic outlook had become more uncertain.
If there were to be evidence of more persistent [price] pressures, then further tightening in monetary policy would be required, the BoE said, echoing guidance it gave at its previous meeting in February.
The BoE said it judged UK banks to be "resilient" and "well placed to continue supporting the economy in a wide range of economic scenarios, including in a period of higher interest rates".
It added it would "monitor closely" any effect market tensions might have on the credit conditions faced by households and businesses.
Seven of the MPC's nine members voted for the rate increase, arguing that the country's stronger outlook for gross domestic product and employment could "reinforce the persistence of higher costs in consumer prices".
MPC members Swati Dhingra and Silvana Tenreyro voted against the rise.
The move followed interest rate decisions by the Swiss National Bank this morning, the US Federal Reserve on Wednesday, and the European Central Bank last week.
"The BoE has kept its options open this month amid financial market turmoil. But assuming the tentatively encouraging trends we've seen in price setting and wage growth numbers continue, we'd expect a pause in May," analysts at ING commented.
Pantheon Macroeconomics analyst Samuel Tombs said the BoE was "downplaying the significance" of the recent inflation reading.
"We see a strong case for expecting 4.25% to be the peak for bank rate. A plethora of indicators point to an imminent sharp fall in inflation, and the recent pick-up in the growth rate of the workforce looks likely to endure, supported by government policies and cost of living pressures. In addition, banks likely will raise lending interest rates modestly over the coming months in response to the recent increase in their funding costs," Tombs added.
Capital Economics thinks the Bank of England may not yet be finished in its battle with inflation.
"We continue to forecast that the BoE will hike rates once more in May, to 4.50%, before cutting rates in 2024 further and faster than is currently discounted in the markets," analysts at the economics bureau said.
"It is the data on the persistence of inflation that will determine whether or not rates rise further," they suggested."And with the banking turmoil likely to accelerate the coming economic weakness, we are becoming a bit more confident in our view that in 2024 rates will be cut to 3.00%. That’s more cuts than investors currently anticipate."
Despite the muted expectations of further rate increases, sterling rose against the dollar after the BoE decision.
The pound was quoted at USD1.2325 at the London equities close Thursday, up from USD1.2228 at the close on Wednesday. The euro stood at USD1.0895 at the European equities close Thursday, up against USD1.0723 at the same time on Wednesday. Against the yen, the dollar was trading at JPY130.73, down from JPY131.47 late Wednesday.
Legal & General's chief investment officer warned more banks will fail as interest rates continue to rise.
Referring to the banking turmoil, Sonja Laud from L&G told BBC Radio 4's Today programme: "Over 70 years and every hiking cycle we have seen in that period, we have never seen a hiking cycle that has not led either to a recession - which is 80% of the cases - or a financial crisis, or both."
"The question always has been why should this time be different? If you slam on the brakes, the chances are something will break and it is always the weakest links that are flushed to the surface first," she explained.
"These were unique business cases and challenged business models that we have seen first. We have to expect more will break simply because we are trying to slow down the economy in order to arrest inflationary pressures," she warned.
Informa dropped 2.0% after Morgan Stanley cut the publishing and exhibitions firm to 'equal-weight'.
Asia-focused banks HSBC and Standard Chartered dropped 2.6% and 3.0% respectively on concerns over the health of the Chinese property sector after the much-delayed release of developer Evergrande’s restructuring plan.
Evergrande was at the centre of a crisis in the Chinese property sector after it defaulted in 2021 with liabilities of USD300 billion, including offshore debt of USD22.7 billion.
The company unveiled a USD19.1 billion debt restructuring, but it wasn't enough to stop Chinese property stocks falling, with banks also in the firing line giving possible exposure to any defaults on loans.
In the FTSE 250, Energean advanced 9.0% after it swung to an annual profit in 2022 and said it has made a positive start to the new year.
The Mediterranean-focused gas exploration and production company swung to a pretax profit of USD107.0 million in 2022 from a loss of USD90.7 million the year prior. Revenue in the year jumped to USD737.1 million from GBP497.0 million.
The company's average working interest production inched up 0.5% to 41,200 barrels of oil equivalent per day from 41,000. Production guidance for 2023 was confirmed at 131,000 to 158,000 barrels of oil equivalent per day.
But shares in Safestyle UK went in the other direction, down 16% after the double glazing specialist issued a profit warning for the current year and swung to loss last year.
Last year's swing to a GBP6.5 million statutory loss was blamed on a cyberattack in the early part of the year, a slowdown in installations during the summer's high temperatures and then UK political instability following the short Liz Truss regime that led to trading turbulence in the latter part of the year.
While 2023 started well, February and March to date have been slower than anticipated, with the order book not really having grown since the end of January, it said. It now expects revenue to be below current expectations.
Brent oil was quoted at USD76.59 a barrel at the London equities close Thursday, up from USD76.04 late Wednesday.
The price of gold made a fresh assault towards the USD2,000 mark, rising to USD1,992.82 an ounce at the London equities close Thursday, against USD1,948.59 at the equities close on Wednesday.
In Friday's UK corporate calendar, there are half year results from pub chain JD Wetherspoon and engineering firm Smiths Group.
The economic calendar for Friday sees UK retail sales figures at 0700 GMT and flash PMI releases in the UK, Europe and the US.
By Jeremy Cutler, Alliance News reporter
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