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London midday: Stocks in the red as BoE votes 7-2 to keep rates on hold
London stocks had extended losses by midday on Thursday as the pound held its gains after the Bank of England kept interest rates steady, as expected, while signalling that an increase in May might be on the cards.
The FTSE 100 was down 1% to 6,969.35, having already fallen further into the red and below the 7,000 mark before the rate announcement, while the pound was up 0.3% versus the euro at 1.1496 and 0.1% firmer against the dollar at 1.4155, as the BoE voted to keep interest rates on hold at 0.5%, as widely expected.
The vote was 7-2 in favour of steady rates, versus consensus expectations of a unanimous outcome, with dissenters Ian McCafferty and Michael Saunders favouring a 25 basis points increase.
The bank's asset-purchase programme was left at £435bn while the corporate bond-buying programme was kept at £10bn.
Meanwhile, the BoE hinted at the prospect of an interest rate hike at its next meeting in May.
"The firming of shorter-term measures of wage growth in recent quarters and a range of survey indicators suggest pay growth will rise further in response to the tightening labour market. This provides increasing confidence that growth in wages and unit labour costs will pick up to target-consistent rates," the bank said in a statement.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: "A rate increase in May still is under active consideration, but the likelihood is nowhere near as high as the 80% chance priced-in by markets before this meeting. We continue to expect activity and inflation data to surprise the Committee to the downside, ensuring that it waits until August to raise interest rates again."
However, Paul Hollingsworth, senior UK economist at Capital Economics, said the "surprisingly hawkish tone" of the March minutes suggests it seems "very likely".
"Presumably the fact that a transition period has been agreed by the EU will also have comforted the MPC, with its forecasts conditioned on a "smooth adjustment" to the future relationship," he said.
Either way, said Ben Brettell at Hargreaves Lansdown, the Bank faces a delicate balancing act, with inflation falling back, a pick-up in wage growth pointing to an erosion of slack in the labour market and the ongoing Brexit-related uncertainty. "It's easy to see why the committee is divided at present."
The BoE's decision came a day after the Federal Reserve lifted rates by 25 basis points on Wednesday, as widely expected, to a target range of 1.5% to 1.75% and signalled that rates would rise twice more this year and three times in 2019.
Earlier, data from the Office for National Statistics showed UK retail sales bounced back more strongly than expected last month after two months of declines, though non-food store sales continued to wane.
Retail sales volumes in February increased 0.8% on the month before, more than the 0.4% rise in volume that economists had forecast and up from January's figure, which was revised to a fall of 0.2%. Increases in volumes were seen across all main sectors except non-food stores in February, while sales values also rose 0.8% on the month.
Excluding fuel, retail sales were up 0.6% month-on-month in February, again beating a 0.4% average forecast and rebounding from a 0.2% fall the month before.
Compared to February last year, retail sales rose 1.5%, which was unchanged from the month after that figure was revised up. Excluding fuel, retail sales were up 1.1%, down from a revised 1.3% for the month before.
With both the Fed and BoE rate announcements out of the way, trade fears were in focus again as President Trump's administration was set to announce a package of punitive measures against China later in the day that include tariffs on imports worth at least $30bn.
On the corporate front, it was 'no deal' Thursday, as consumer goods giant Reckitt Benckiser said it had ended discussions with Pfizer about buying part of the US company's consumer healthcare business. The consumer goods company said it did not want to buy the whole business and that it was not possible to buy part of the division.
Meanwhile, infrastructure and support services business Stobart said it no longer plans to make a bid for regional airline Flybe after the companies failed to agree on "satisfactory" terms. Shares in Flybe tanked on the news.
Health and safety technology group Halma fell after saying that profits for the year to 31 March would be in line with current market forecasts as growth continued in the second half.
Ted Baker was in the red after it reported a 12% jump in full-year pre-tax profit as revenue grew but the retailer warned that "external" trading conditions will remain challenging, while Sanne retreated despite posting a 49% jump in full-year pre-tax profit.
Micro Focus was sharply lower again following a profit warning on Monday.
IG Group rallied as it reported record third-quarter revenue, while Crest Nicholson was higher as the housebuilder said trading conditions continue to be generally robust with good sales across its areas of operation and strong demand for homes.
The GKN/Melrose drama rumbled on as the engineer told its shareholders in a letter that it continues to view the turnaround specialist's offer as "entirely opportunistic". Chairman Mike Turner said Melrose's offer is "wholly inadequate in comparison to the value creation potential inherent" in the group's planned strategy.
Interserve surged after announcing late the previous day that it had agreed almost £300m of further financing from its lenders.
Ultra Electronics edged up as the defence company appointed Simon Pryce formerly group CEO at BBA Aviation, as its new chief executive.
In broker note action, Esure was lifted to 'neutral' from 'underweight' by JPMorgan, while GlaxoSmithKline was upgraded to 'equalweight' from 'underweight' at Morgan Stanley.
Hastings got a boost to 'overweight' from 'neutral' at JPM, while Reckitt Benckiser was upgraded to 'buy' from 'hold' at SocGen.
Meanwhile, ex-dividend stocks were taking six points off the FTSE 100 and 21.5 points off the 250. Sky, British American Tobacco, Randgold Resources, Segro, Schroders, Meggitt, Centamin, GVC Holdings, Close Bros, Kier Group, OneSavings Bank, Stobart and Dunelm went ex-dividend.
Market Movers
FTSE 100 (UKX) 6,969.35 -0.99%
FTSE 250 (MCX) 19,551.50 -0.59%
techMARK (TASX) 3,178.07 -1.25%
FTSE 100 - Risers
Reckitt Benckiser Group (RB.) 5,931.00p 5.42%
Coca-Cola HBC AG (CDI) (CCH) 2,493.00p 1.80%
Old Mutual (OML) 248.80p 1.72%
Evraz (EVR) 437.90p 1.30%
London Stock Exchange Group (LSE) 4,187.00p 0.89%
Associated British Foods (ABF) 2,438.00p 0.87%
Rentokil Initial (RTO) 276.00p 0.77%
Just Eat (JE.) 711.40p 0.71%
Next (NXT) 4,650.15p 0.46%
ITV (ITV) 143.45p 0.38%
FTSE 100 - Fallers
Micro Focus International (MCRO) 904.00p -7.05%
Schroders (SDR) 3,290.00p -2.84%
Randgold Resources Ltd. (RRS) 5,746.00p -2.68%
Kingfisher (KGF) 293.90p -2.55%
Vodafone Group (VOD) 192.00p -2.45%
Standard Chartered (STAN) 729.20p -2.40%
Halma (HLMA) 1,156.00p -2.36%
SEGRO (SGRO) 596.20p -2.26%
Scottish Mortgage Inv Trust (SMT) 447.24p -2.22%
NMC Health (NMC) 3,362.00p -2.15%
FTSE 250 - Risers
Provident Financial (PFG) 679.40p 4.03%
Softcat (SCT) 607.00p 3.06%
Petrofac Ltd. (PFC) 521.20p 2.96%
IG Group Holdings (IGG) 841.50p 2.94%
888 Holdings (888) 275.80p 2.15%
Thomas Cook Group (TCG) 121.20p 2.11%
Rank Group (RNK) 219.00p 2.10%
Merlin Entertainments (MERL) 354.70p 2.07%
Greene King (GNK) 471.80p 2.01%
JD Sports Fashion (JD.) 354.50p 1.93%
FTSE 250 - Fallers
Ted Baker (TED) 2,740.00p -6.68%
Centamin (DI) (CEY) 149.35p -4.26%
Ferrexpo (FXPO) 292.70p -3.91%
Greencore Group (GNC) 128.10p -3.65%
Phoenix Group Holdings (DI) (PHNX) 762.00p -3.42%
Meggitt (MGGT) 429.40p -3.16%
Fidelity European Values (FEV) 208.84p -2.86%
Bellway (BWY) 3,053.00p -2.80%
Fidelity China Special Situations (FCSS) 245.00p -2.78%
Marshalls (MSLH) 418.00p -2.70%