Sterling dives as Bank of England holds interest rates
The move represented a u-turn from Threadneedle Street, which had until recently been signalling a hike.
Sterling tumbled on Thursday after the Bank of England opted to keep interest rates on hold and revised down growth forecasts amid a flurry of data confirming the economy is stalling.
The Bank’s Monetary Policy Committee (MPC) voted 7-2 to keep rates on hold at 0.5% following the shock slowdown in growth to 0.1% in the first quarter, as the impact of the Beast from the East compounded woes in consumer and construction sectors.
The move represented a u-turn from Threadneedle Street, which had until recently been signalling a hike was on the cards.
The pound tanked on the news, falling 0.5% against the US dollar to 1.348. Versus the euro, sterling fell 0.75% to 1.133.
Fiona Cincotta, senior market analyst at City Index, said: “A weaker inflation report from the Bank of England coupled with soft UK data sucked any remaining optimism out of pound traders, sending sterling tumbling against the dollar.
“Those traders positioned for a hawkish hold were disappointed as the BoE decided to follow the wait and see route, but on the basis that inflation was falling faster than they had predicted.”
The dire first quarter performance also saw the Bank downgrade its 2018 growth outlook to 1.4%, from 1.8% predicted in February.
The pound was further dented by official figures from the Office for National Statistics, which showed that construction output suffered its biggest decline since August 2012, adding to evidence of “sluggish” economic growth in the first quarter.
Manufacturing output also fell by 0.1% in March compared to February.
As the pound tumbled the FTSE 100 went in the opposite direction, ending the day well up, rising 0.5%, or 38.45 points to a three month high of 7,700.97.
In stocks, Next was the biggest top flight riser, gaining 322p to 5,568p, as the retailer upgraded its annual profits forecast following a sales boost from the recent heatwave.
The group said that unusually warm weather in recent weeks, which resulted in a “sales over-performance”, will add around £12 million to its full year profit.
ITV was the second highest riser after the broadcasting giant posted rising first quarter revenue, helped by a strong performance in its studios division.
Shares closed 9.15p up at 160.35p.
Royal Bank of Scotland was also on the up after agreeing a 4.9 billion US dollar (£3.6 billion) settlement with US regulators over claims it mis-sold toxic mortgage bonds in the run-up to the financial crisis. Shares closed up 10.4p at 286.5p.
The biggest faller was BT, which announced that 13,000 jobs are to be axed as part of a revamped cost-cutting drive.
Plans were also revealed to exit the BT headquarters in central London, though another site in the capital is expected to house its head office.
Shares crashed 17.55p to 221.05p.
Across Europe, France’s Cac 40 was up 0.2%, while the Dax in Germany rose 0.6%.
In oil markets, Brent crude prices were relatively stable, nudging down 0.2% to 77.180 US dollars per barrel after a day of hefty gains.
The biggest risers on the FTSE 100 were Next up 322p to 5,568p, ITV up 9.15p to 160.35p, RBS up 10.4p at 286.5p, Kingfisher up 9p to 297.3p and RSA up 19.8p to 655.2p.
The biggest fallers on the FTSE 100 were BT down 17.55p to 221.05p, Rangold Resources down 426p to 5,674p, Centrica down 8.95p to 146.5p and Admiral down 40p to 1,972p.