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LONDON MARKET MIDDAY: Shares weak as Bank of England hikes as expected

11th May 2023 12:25

(Alliance News) - Stock prices in London were slightly lower on Thursday afternoon, after the Bank of England raised interest rates in the UK by 25 basis points, as expected.

The FTSE 100 index was down 8.69 points, or 0.1%, at 7,731.84. The FTSE 250 was down 29.45 points, or 0.2%, at 19,243.84. Small-caps were faring less well. The AIM All-Share was down 9.45 points, or 1.2%, at 815.74.

The Cboe UK 100 was down 0.1% at 773.11, the Cboe UK 250 was down 0.2% at 16,855.52, and the Cboe Small Companies was down 0.1% at 13,531.46.

The Bank of England raised interest rates by a quarter of a percent in a 7-2 majority decision, taking the bank rate to 4.5%. Two members of the Monetary Policy Committee, Swati Dhingra and Silvana Tenreyro, voted to keep the benchmark rate at 4.25%.

The central bank said that, by raising UK interest rates, it is "continuing to address the risk of more persistent strength in domestic price and wage setting."

It added that the inflation rate in the UK is expected to fall "sharply" from April onward, in part as large rises in the price level one year ago drop out of the annual comparison. Consumer price inflation was running at 10.1% in March.

"There has been upside news to the near-term outlook for global activity, with UK-weighted world GDP now expected to grow at a moderate pace throughout the forecast period. Risks remain but, absent a further shock, there is likely to be only a small impact on GDP from the tightening of credit conditions related to recent global banking sector developments," the central bank said its monetary policy statement.

The pound was quoted at USD1.2597 at midday on Thursday in London, lower compared to USD1.2620 at the stock market close on Wednesday.

On the London Stock Exchange, insurance firm Admiral rose 2.4%.

The Association of British Insurer reported that the average price paid for motor insurance jumped by 16% annually in the first quarter of this year.

ABI said motorists typically paid GBP478 for private comprehensive cover in the first three months of 2023, which was a 2% increase compared with the previous quarter and the highest figure recorded since premiums cost GBP483 on average in the final quarter of 2019.

Airtel Africa fell 6.9%. It reported a drop in annual profit, as its net finance costs ballooned due to the devaluation of some African currencies.

The telecommunications company said pretax profit in financial year 2023 ended March 31 fell 16% to USD1.03 billion from USD1.22 billion a year prior. This came as net finance costs increased 79% to USD723 million from USD403 million.

Airtel Africa reported higher foreign exchange and derivative losses of USD245 million, and a hit of USD82 million from devaluations of the Nigerian naira. It also reported a USD96 million hit from the devaluation of Kenyan and Ugandan shillings and Malawian and Zambian kwachas.

Rolls-Royce shares lost 5.5%, as the company disappointed investors with no boost to its forward guidance.

The developer of power and propulsion systems, including jet engines and nuclear reactors, said its transformation under new Chief Executive Officer Tufan Erginbilgic is picking up pace.

For the first four months of 2023, Rolls-Royce backed its underlying operating profit guidance range of GBP800 million to GBP1.0 billion for 2023, and maintained its free cash flow guidance of GBP600 million to GBP800 million. In 2022, operating profit was GBP837 million. Underlying free cash flow was GBP505 million.

AJ Bell analyst Russ Mould said there was "nothing to really frighten the horses" in the Rolls-Royce trading update.

"Trading is in line, and the company's key aerospace business is mirroring the recovery in the wider aviation sector to edge back towards pre-pandemic levels," he said.

In the FTSE 250, Diploma jumped 5.1%, after Jefferies raised the technical product and services supplier to 'buy' from 'hold', with an increased price target of 3,150 pence. The stock is currently trading at 2,832.00p.

FirstGroup fell 6.5%. The UK government announced that train services run by TransPennine Express, which FirstGroup operates, will be nationalised after months of delays and cancellations. TheDepartment for Transport said services will be brought under its Operator of Last Resort from May 28.

ITV was down 4.0%, after it reported first-quarter revenue dipped amid a weaker advertising market.

Total revenue for the television broadcaster and content producer was down around 7.0% to GBP776 million from GBP834 million a year earlier.

Looking ahead, ITV expects at least 5% average organic growth per year to 2026. It added that it maintains committed to delivering GBP15 million of cost savings in 2023.

Elsewhere in London, Purplebricks plunged 25%.

Late on Wednesday, the online real estate agent announced it had granted Strike a short period of exclusivity in order to negotiate a possible sale of the business and assets of the company. Strike is a Colchester-based online estate agent.

Purplebricks stressed the exclusivity arrangement does not restrict it from pursuing an offer for the firm from another source, with the formal sale process, which was announced on March 1, ongoing.

If the business and asset sale go ahead, Purplebricks said it intends to return the cash proceeds to shareholders, but it noted such a return is "likely to be at a level below the current share price".

In a separate statement, Strike confirmed it had no intention of making a bid for the entire share capital of Purplebricks, but it confirmed the exclusivity talks.

In European equities on Thursday, the CAC 40 index in Paris was up 0.6%, while the DAX 40 in Frankfurt was up 0.1%.

The euro stood at USD1.0923 at midday in London, lower against USD1.0975 late Wednesday. Against the yen, the dollar was trading at JPY134.56, firm on JPY134.48.

Stocks in New York were called to open mostly higher. The Dow Jones Industrial Average was called flat, while the S&P 500 and Nasdaq Composite were called up 0.2%.

Stocks in New York ended largely higher on Wednesday, with tech shares getting a boost after the data that showed US inflation slowing. Annually, inflation was 4.9% before seasonal adjustment in April, down from 5.0% rate in March. Market consensus, according to FX Street, had expected 5.0% inflation again in April.

Brent oil was quoted at USD76.75 a barrel at midday in London on Thursday, down slightly from USD76.85 late Wednesday. Gold was quoted at USD2,029.11 an ounce, higher against USD2,023.42.

Still to come in Thursday's economic calendar is the US producer price index.

By Heather Rydings, Alliance News senior economics reporter

Comments and questions to [email protected]

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