30th Jul 2026 12:23
(Alliance News) - The Bank of England held rates on Thursday in a decision that had a slightly more hawkish slant than expected, as three of the nine-strong Monetary Policy Committee voted to hike.
Nonetheless, the FTSE 100 remained in the green, after steadily moving off an earlier high as the morning progressed. Sterling traded around USD1.34, as the dollar continued to struggle after Wednesday's Federal Reserve decision.
The BoE left bank rate at 3.75% and it believes risks to the "inflation outlook are tilted to the upside relative to the central projection" given in its monetary policy report.
The FTSE 100 index rose 16.92 points, 0.2%, at 10,925.33 on Thursday. The blue-chip index hit a record high of 10,979.60 earlier on Thursday.
The FTSE 250 added 68.83 points, 0.3%, at 24,065.64, and the AIM all-share rose 2.65 points, 0.4%, at 764.50.
The Cboe UK 100 rose 0.4% at 1,086.26, the Cboe UK 250 climbed 0.5% at 20,975.83, and the Cboe small companies was flat at 18,687.13.
In Frankfurt, the DAX 40 was flat. The CAC 40 in Paris was up 0.9%.
Six MPC members, including Governor Andrew Bailey, backed the hold.
"Holding bank rate, combined with the significant tightening of financial conditions that had occurred since the conflict started, was providing sufficient insurance against the upside risks to inflation stemming from fluctuations in energy prices. This would allow time to observe further evidence, preserving the option to change bank rate in future were the evidence to warrant it. Members recognised the potential need for additional policy restraint were signs of material second-round effects to emerge. But they also noted that the policy strategy could change were upside risks to inflation to subside durably and the underlying disinflation process to continue," the BoE's statement said.
Megan Greene, Catherine Mann and Huw Pill voted in favour of a 25 basis point hike. Only two had been expected to support a hike, according to consensus.
"These members were less reassured on the underlying disinflationary process, were concerned that second-round effects could be material, and thought it relevant that inflation had exceeded the 2% target for more than five years. For these members, uncertainty about how the conflict would evolve remained high, and so a risk management strategy was appropriate. They believed that a proactive increase in bank rate would reduce the probability of second-round effects setting in. Further, research found that setting policy as if there were stronger second-round effects and course correcting if needed, would prove to be less costly than vice versa," the BoE said.
Sterling traded at USD1.3394 after the decision on Thursday, more or less where it stood shortly beforehand. It jumped from USD1.3284 at the time of the London equities close on Wednesday. Against the euro, however, it eased to EUR1.1664 from EUR1.1673 a day prior.
The euro rose to USD1.1475 on Thursday from USD1.1380 late Wednesday afternoon. Versus the yen, the buck fell to JPY162.74 from JPY163.85.
AJ Bell analyst Russ Mould said Fed Chair Warsh failed to convince the bond market of his resolve to fight inflation.
"New chair Kevin Warsh got a spiky welcome from the US bond market. Despite his publicly expressed commitment to sound monetary policy and reining in the galloping expansion of the US central bank's balance sheet, Warsh failed to convince holders of US Treasuries of his inflation-fighting credentials," Mould commented.
"He may need to move sooner rather than later if he is to convince bond vigilantes that he is doing no more than talking loudly and carrying a big stick."
A divergence in the US bond market typified the market reaction on Thursday. The 2-year and 5-year yields ebbed to daily lows after the Fed decision and press conference, but the 10-year and 30-year yields ended the day wider.
The yield on the 10-year US Treasury widened to 4.69% early Thursday afternoon from 4.64% at the time of the London equities close on Wednesday, while the 30-year yield stretched to 5.23% from 5.12%.
Rabobank analysts commented: "On the back of yesterday's steady policy outcome from the Federal Reserve, 30-year bond yields jumped. At the short end of the curve, rates dropped and the USD duly weakened. This move in asset values reflected the doubts that rose following yesterday's meeting about whether Chair Warsh's inflation fighting credentials were as real as he has recently professed them to be."
A barrel of Brent rose marginally to USD90.14 on Thursday afternoon from USD90.09 at the time of the London equities close on Wednesday. Gold rose to USD4,079.22 an ounce from USD4,011.17.
Mediator Pakistan insisted on Thursday that negotiations between Iran and the US were ongoing, even as Washington carried out a "heavy wave of strikes" on its foe in retaliation for fresh attacks targeting Jordan.
The last two days have seen Saudi Arabia join the US in striking militant groups in Iraq, and Egypt come under fire for the first time with a drone attack at a Mediterranean port.
The eurozone economy grew in the second quarter, despite the conflict. Eurostat said gross domestic product in the single currency area rose 0.4% quarter-on-quarter in the second quarter. GDP had been flat in the first quarter from the fourth quarter of 2025.
Second-quarter growth beat an FXStreet-cited market forecast of 0.2%.
ING analysts commented: "Yes, downside risks clearly remain amid the Middle East and other global uncertainty drivers – but a continued decent growth pace is not an unreasonable bet for the quarters ahead."
In London, shares in Rolls-Royce rose 5.2%. The jet engine maker now expects to deliver underlying operating profit of GBP4.7 billion to GBP4.9 billion and free cash flow of GBP3.8 billion to GBP4.0 billion for the full-year.
Its profit guidance was previously ranged at GBP4.0 billion to GBP4.2 billion, and the cash flow goal was GBP3.6 billion to GBP3.8 billion.
Rentokil was on the decline, slumping 18%. It plans to invest more in its North American business, and as a result "retire" a margin target, as performance in the unit falls short of expectations.
The pest control specialist is "retiring" its North America margin target of 20% in 2027 to reflect the increased investment.
"Achieving our potential will require disciplined reinvestment primarily back into the North America business which we will fully self-fund through cost savings," said Chief Executive Mike Duffy, who took charge in March.
Among the best FTSE 250 performers after a guidance hike, Helios Towers added 5.0%. The mobile tower company said tenancies in the first half of 2026 rise 13% on-year to 34,455 from 30,617. It lifted its full-year view to 3,500-4,000 tenancy additions, from a prior view of 3,000 to 3,500.
Adjusted earnings before interest, tax, depreciation and amortisation rose 14% to USD257.0 million in the first half from USD225.5 million, with its full-year view increased to a USD520 million to USD535 million range from USD515 million to USD530 million previously.
On AIM, Zoo Digital added 7.3%. Its pretax loss in the financial year ended March 31 narrowed to USD2.3 million from USD8.3 million, the provider of localisation services to the entertainment industry reported. Revenue fell 15% to USD42.3 million from USD49.6 million.
Localisation services include adapting media to a certain audience. This includes altering visuals, cultural references, idioms and jokes.
"Strong trading in FY27Q1 marks an encouraging start to our new financial year," Zoo Digital added.
"This gives the board confidence in delivering a return to revenue growth and profit progression during the year."
In New York, the Dow Jones Industrial Average is called 0.3% higher, the S&P 500 0.5% higher and the Nasdaq Composite up 1.0%.
Meta and Microsoft shares diverged.
AJ Bell's Mould commented: "Microsoft pleased as its earnings were better than expected and chief executive Satya Nadella was able to point to a big jump in sales at the Azure operation, a provider of infrastructure and cloud services for the burgeoning Artificial Intelligence ecosystem, to help justify the company's massive investment in data centres and its own AI offering. Meta, meanwhile, is struggling to offer similar proof to conjure up bad memories of the company's misadventures with its efforts to develop the Metaverse earlier this decade, which saw it pour nearly USD90 billion down the drain and embark upon a cost-cutting programme to reassure nervous investors.
"Despite the differing responses, there were some similarities between the numbers, too. Capital expenditure continued to surge at both, and free cash flow shrivelled. Those of a more forensic inclination will have also noted, with some suspicion, the capital gain booked by Microsoft on its AI-related investments, which gave the stated numbers a boost, and some subtle accounting changes, notably the rate at which data centres age and depreciate, and how leases are shown on the balance sheet."
Meta shares slumped 8.8% in pre-market dealings. Microsoft shot up 9.2%.
By Eric Cunha, Alliance News news editor
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