Interest rate hint sends sterling rocketing to highest level since Brexit result
The pound pushed 1.4% higher to 1.358 versus the US dollar to reach levels not seen since June 24 last year.
Sterling has leapt to its highest level since the EU referendum result after a Bank of England policymaker hinted that he may back an interest rate rise.
The pound continued its remarkable rally from Thursday’s session, pushing 1.4% higher to 1.358 versus the US dollar to clock levels not seen since June 24 last year.
Sterling also climbed 0.9% against the euro to 1.135.
However, the strength of the UK currency heaped more misery on blue-chip stocks, with the FTSE 100 Index dropping to its lowest level since April, before closing down 79.92 points to 7,215.47.
Multinational blue-chip stocks suffer when the pound rises because their overseas earnings are hit by a less favourable currency translation.
It comes after one of the Bank’s most dovish policymakers said he may back a hike “as early as in the coming months”.
Gertjan Vlieghe, an external voting member of the Bank’s Monetary Policy Committee (MPC), said he has been “struck” by a series of developments in the UK economy – including high inflation – and pointed to the wider economic backdrop of “improving global growth” over the past year.
Mr Vlieghe has yet to cast a vote in favour of a hike, having fallen among the majority when the nine-strong MPC voted 7-2 to keep interest rates on hold at record lows of 0.25% on Thursday.
If conditions are met, he could end up joining more hawkish members including Ian McCafferty and Michael Saunders in calling for a hike.
But the MPC member said that there were still grounds to hold steady on rates, particularly given “continued uncertainty” over the UK’s future trading relationship with the EU “and the rest of the world” in light of Brexit.
You'd think the MPC would have more conviction than this to justify warning of a rate hike "in the coming months": pic.twitter.com/VngxWibIcM— Samuel Tombs (@samueltombs) September 14, 2017
European markets also drifted lower on Friday, with Germany’s Xetra Dax and the Cac 40 in France both slipping by 0.2%.
However, the price of oil was 0.2% higher at $55.57 a barrel following forecasts of increased demand and reports US refineries kicking back into gear.
In UK stocks, pub group JD Wetherspoon was the biggest riser on the second tier thanks to rising full-year sales and profit, while the pub chain’s Brexit-backing chairman took aim at EU “oligarchs” in yet another rant.
Revenue rose 4.1% to £1.66 billion in the year to July 30 as the group booked profits of £102.8 million, an increase of 27.6%.
Like-for-like sales rose 4% in the period, with Wetherspoon saying that comparable sales have increased by 6.1% since August.
Chairman Tim Martin said: “This is a positive start, but is for a few weeks only – and is very unlikely to continue for the rest of the year.
“Comparisons will become more stretching – and sales, which were very strong in the summer holidays, are likely to return to more modest levels.
“It is anticipated that like-for-like sales of around 3-4% will be required in order to match last year’s profit before tax.”
Shares soared more than 13%, or 145p to 1,189p.
The biggest risers on the FTSE 100 Index were Imperial Brands up 67p to 3,327.5p, ITV up 2.2p to 158.2p, British American Tobacco up 48.5p to 4,741p, Next up 51p to 5,045p.
The biggest fallers were Carnival down 317p to 4,783p, Provident Financial down 35.5p to 794p, Ferguson down 152p to 4,486p, Pearson down 18p to 568.5p.