FTSE rises as investors enjoy Bank of England’s dovish turn
The Central Bank held interest rates, but said cuts could come if Brexit causes an economic slowdown
The FTSE 100 managed to recover most of the value lost in the first half of the week due to the drone attack on two oil facilities in Saudi Arabia.
Closing up 42.37 points – a rise of 0.58% – to 7,356.42, traders appeared to broadly accept the Saudis’ claims that the Aramco sites will be back to full capacity by November, whilst welcoming the dovish sounds coming from the Bank of England.
The London blue chip index followed its French and German counterparts in rising, with the Paris Cac up 0.68% and the Frankfurt Dax up 0.55%.
Up until now the BoE had retained a hawkish bias; today that was replaced with a slightly more dovish stance as the UK central bank joins the other central banks around the globe with a more cautious outlook Fiona Cincotta, senior market analyst at City Index
And with investors hopeful that the Bank of England could cut rates if a no-deal Brexit damages the economy, the pound also rose slightly against the dollar, with a pound worth 1.2474. Against the euro it fell 0.0010 to 1.1295.
Fiona Cincotta, senior market analyst at City Index, said: “As expected the Bank of England kept rates on hold in a unanimous vote. However, the central bank struck a more dovish tone, indicating that its next move could be a rate cut rather than a hike.
“Up until now the BoE had retained a hawkish bias; today that was replaced with a slightly more dovish stance as the UK central bank joins the other central banks around the globe with a more cautious outlook.”
The bank did say a rate hike may be needed if a smooth Brexit takes place, but, most analysts believed the most probable outcome is a continued Brexit and political uncertainty – which may require a rates cut.
Oil prices rose slightly on Thursday – having initially fallen after Monday’s spikes – due to the latest rhetoric coming from the US, which has imposed further sanctions on Iran.
Investors fear further instability in the Middle East could impact oil prices longer term. A barrel of Brent Crude was up 1.42% at 64.50 dollars.
In company news, high street retailer Next revealed a 2.7% rise in pre-tax profits to £319.6 million for the six months to July as online sales growth continued to offset high street woes.
But the company cautioned that autumn trading so far had been “disappointing”, which was likely to lead to a weaker third quarter, sending shareholders running and shares down 350p, or 5.67%, to 5,820p – making it the biggest faller on the FTSE 100.
Under-pressure government contractor Kier, which has contracts with Crossrail and Highways England among others, swung to a £245 million loss, but put faith in turnaround plans to revive its fortunes.
Shareholders appeared apprehensive, with shares closing up just 0.9p at 133p.
JD Sports’ shares closed the day down 20.4p at 692p, after investors digested the news from the Competition and Markets Authority that the retailer’s £90 million deal to buy high street rival Footasylum could lead to “higher prices” and “worse choice” for customers.
Bosses must now write to the CMA with solutions to the watchdog’s concerns to avoid a lengthy investigation.
The biggest risers on the FTSE 100 were International Consolidated Airlines up 16.9p at 466.9p; Vodafone up 4.2p at 160.4p; AstraZeneca up 180p at 7,127p; Direct Line up 6.8p at 305.4p and Standard Life Aberdeen up 5.9p at 275.2p.
The biggest fallers were Next down 350p at 5,820p; Ocado down 49p at 1,295p; JD Sports down 20.40p at 692p; Fresnillo down 20.20p at 716.6p and Evraz down 12.3p and 490.7p.