London Midday: Stocks Stay Down as BoE Stands Pat, as Expected
London stocks remained in the red just after midday on Thursday following the Bank of England’s decision to maintain current interest rates, a move that was widely anticipated by the market.
The FTSE 100 dipped by 0.3%, trading at 8,815.13, whereas sterling showed modest strength, rising 0.1% against the dollar to 1.3439.
The Bank of England’s Monetary Policy Committee voted by a majority of six to three to keep the cost of borrowing unchanged at 4.25%. Voting for a 25 basis point reduction to 4% were external members Swati Dhingra and Alan Taylor, along with deputy governor Dave Ramsden. Meanwhile, Governor Andrew Bailey and chief economist Huw Pill preferred no change in the rate.
The minutes released alongside the decision highlighted that inflation is anticipated to hover around 3.5% before receding towards the target mark starting next year. The MPC concluded, “Given the outlook, and continued disinflation, a gradual and careful approach to the further withdrawal of monetary policy restraint remained appropriate.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, commented, “Policymakers are in a stalemate. Growth has seized up, but inflation has stayed stubbornly sticky. Trade deals have cleared some economic clouds, but conflict in the Middle East threatens further turmoil. Energy prices looked like they were on their way down, but are now ramping back up. The labour market has shown signs of easing but not enough to erase worries about hot wage growth.”
She added, “In every direction, there’s a conundrum to confront, so policymakers have judged that pressing the pause button on rates is the best option for now. Given the unpredictable winds whistling through the world, global growth is set to slow, keeping activity in the UK highly sluggish. The economy will need a shove to get moving again, and so two interest rate cuts are still on the horizon this year. Hopes for a summer rate reduction haven’t completely faded, with bets ramping up that a cut in August could provide the rays of relief that borrowers have been waiting for.”
In related news, Norway’s central bank unexpectedly reduced its policy rate to 4.25% from 4.5%, a level it had maintained since December 2023, defying analysts’ expectations to hold rates steady. Similarly, the Swiss National Bank slashed interest rates by 25 basis points to zero, attributing the decision to countering reduced inflationary pressure.
The US Federal Reserve, on Wednesday, opted to keep its benchmark rate unchanged at 4.25% to 4.50% for the fourth consecutive meeting. Looking ahead, the Fed signaled it expects two rate cuts before the year’s end while also lowering growth predictions for the next two years.
Broader market conditions were also influenced by ongoing concerns about the Israel-Iran conflict, further impacting sentiment.
Neil Wilson, UK investor strategist at Saxo Markets, observed, “Geopolitics is still front and centre for markets even as we are in the midst of a busy central bank week. The Israel-Iran conflict is now being viewed by investors through the lens of whether the US gets involved or not.”
He added, “President Trump says that he ‘may or may not’ strike Iran, but the mood music seems to be martial in its drumbeat.”
In equity markets, companies such as United Utilities, Persimmon, and Compass experienced declines as they traded without entitlement to the dividend. Whitbread also faced challenges, with the Premier Inn owner reporting a decline in first-quarter sales amidst a “challenging” UK market environment. Meanwhile, recruiter Hays saw a significant tumble after warning of lower full-year profits due to “more challenging” permanent markets. In its pre-close year-end trading update, Hays indicated it now expects a FY25 pre-exceptional operating profit of approximately £45m.
