London close: Stocks rise as BoE's softer forecast hits pound

London stocks finished higher on Thursday as the Bank of England's wait-and-see attitude put pressure on the pound, while updates from Next, RBS and ITV were well received.

The FTSE 100 closed 0.5% higher at 7,700.97 as the pound fell 0.5% against the dollar to below $1.35 after the BoE's monetary policy committee kept rates on hold and cut forecasts for UK economic growth and inflation.

The MPC voted 7-2 to keep interest rates unchanged at 0.5%, with Ian McCafferty and Michael Saunders again the two dissenters. But the majority felt it was better to wait and see how the data unfolded over the coming months after what the committee felt was a "temporary soft patch" that led to a weak first quarter print on gross domestic product.

"At this meeting, the costs to waiting for additional information were likely to be modest, given the need for only limited tightening over the forecast period to return inflation sustainably to the target," the committee said.

David Cheetham, chief market analyst at XTB, said the BoE announcement confirmed "a pretty remarkable stepping down from the bank", which was seen nailed-on for a May hike less than a month ago.

The BoE said it now sees growth of 1.4% this year, down from 1.8% in February, although its 2019 and 2020 forecasts were unchanged at 1.7%. The central bank also updated its inflation forecasts, with CPI seen likely to slow to its 2% target faster than previously anticipated and highlighted recent weak data points.

Traders were also keeping tabs on events in the Middle East following an Israeli counter-strike against Iranian military assets in Syria. With the potential that various factors could drive oil prices higher, analyst Michael Hewson at CMC Markets said: "The rise in the oil price, now up over 50% since September last year hasn’t as yet prompted a re-evaluation in this year’s economic forecasts but as can be seen from recent weak consumer data, in Europe, the UK, as well as the US, it could well be starting to have an effect in some of the more recent retail sales numbers.

"Paying more to fill up your vehicle leaves a lot less room for those consumer discretionary items. If oil prices move above $80 a barrel, as seems likely given recent events with the Iran nuclear deal, as well as unrest and upcoming so-called elections in Venezuela, this could well cause further headaches for policymakers, if the global economy were to slow on the back of these price rises."

Earlier, figures from the Office for National Statistics revealed sluggish factory output and a continuing contraction in the construction industry. Manufacturing output fell for the second month in a row in March, meaning first-quarter growth slowed to 0.2% from 1.3% in the final quarter of 2017.

The ONS said manufacturing growth weakened because of a reduction in both export and domestic turnover, suggesting the slowdown was not a weather-related blip. Manufacturing helped keep the economy growing in 2017 as the weaker pound and the booming global activity combined to support demand for UK products.

Construction output fell 2.3% in March and 2.7% in the first quarter - the biggest contraction since August 2012. Residential housing activity, previously a bright spot for a sector in recession, registered a quarter-on-quarter fall of 1.6%.

On the corporate front, Next rallied after the clothing retailer upgraded its profit guidance for the year, posting a rise in first-quarter sales thanks to unusually warm weather in recent weeks.

Royal Bank of Scotland was on the front foot as it agreed to pay $4.9bn (£3.6bn) to settle a long-running investigation by the US Department of Justice into the bank’s dealing in mortgage-backed securities before the financial crisis. Investors' first thoughts were likely to be about how RBS will be able to reinstate its dividend at long last and begin the process of re-privatisation.

Investors switched over to ITV after it posted a 5% rise in total first-quarter external revenue and said it is on track to deliver double-digit growth in online revenue. New chief executive Carolyn McCall said her "strategic refresh is progressing well" and that over the full year "we are on track to deliver double digit growth in online revenue and good organic revenue growth in ITV Studios".

Morrisons was on the front foot after it reported a strong start to the year, with group like-for-like sales in the 13 weeks to 6 May up 3.6%.

Coca-Cola HBC rose despite saying that first-quarter net sales fell 1.7%, mainly due to currency hits from the Russian rouble and Nigerian naira.

On the downside, BT led the FTSE 100 fallers as the telecoms giant reported a second year of lower profits, but chief executive Gavin Patterson unveiled a plan to cut £1.5bn of costs within three years by axing 13,000 back office jobs and restructuring its offices. Coming a day after Vodafone's deal with Virgin Media owner Liberty Global and with Sky likely to have a new owner soon, Patterson also plans to hire 6,000 more new staff as part of an operating strategy rejig that will see higher capital expenditure in coming years.

Superdry tumbled as the faux-Japanese clothing label warned on profits due to the impact of February's Beast from the East snowstorm and lower spring temperatures on quarterly store sales, which fell 6%, though online was a bright spot.

Outsourcer Capita's shares nosedived as its stock went ex-rights, while Randgold Resources retreated after it said profit fell 22% in the first quarter.

Short-haul holiday specialist On the Beach was under the cosh even as it posted a jump in interim profit and revenue, with growth slowing slightly compared to the rapid pace in the first quarter.

In broker note action, Schroders was downgraded to ‘hold’ at Berenberg, while Interserve was cut to ‘hold’ at Liberum and Lonmin was knocked down to ‘sell’ at Liberum. IMI was upgraded to ‘buy’ at Jefferies.

Stocks going ex-dividend this Thursday included Admiral, BP, Centrica, GlaxoSmithKline, Shell, Sage, Fidessa, Hochschild, Hiscox, Polymetal and Greencoat UK Wind.

Market Movers

FTSE 100 (UKX) 7,700.97 0.50%
FTSE 250 (MCX) 20,691.13 0.04%
techMARK (TASX) 3,494.21 0.09%

FTSE 100 - Risers

Next (NXT) 5,568.00p 6.14%
ITV (ITV) 160.06p 5.86%
Royal Bank of Scotland Group (RBS) 286.50p 3.77%
Kingfisher (KGF) 297.80p 3.30%
RSA Insurance Group (RSA) 655.20p 3.12%
Coca-Cola HBC AG (CDI) (CCH) 2,540.00p 3.00%
Anglo American (AAL) 1,800.20p 2.87%
WPP (WPP) 1,306.00p 2.79%
Glencore (GLEN) 376.60p 2.66%
Scottish Mortgage Inv Trust (SMT) 511.00p 2.65%

FTSE 100 - Fallers

BT Group (BT.A) 221.05p -7.36%
Randgold Resources Ltd. (RRS) 5,674.00p -6.98%
Centrica (CNA) 146.50p -5.76%
Admiral Group (ADM) 1,972.00p -1.99%
Mediclinic International (MDC) 694.00p -1.76%
Barratt Developments (BDEV) 558.60p -1.69%
BP (BP.) 564.00p -1.40%
Evraz (EVR) 501.20p -1.30%
Royal Dutch Shell 'B' (RDSB) 2,705.50p -0.61%
Taylor Wimpey (TW.) 192.70p -0.59%

FTSE 250 - Risers

Capita (CPI) 128.55p 5.30%
Equiniti Group (EQN) 287.00p 4.74%
Kaz Minerals (KAZ) 1,019.00p 3.87%
Sanne Group (SNN) 634.00p 3.59%
Polypipe Group (PLP) 408.60p 2.46%
Entertainment One Limited (ETO) 295.00p 2.22%
RHI Magnesita N.V. (DI) (RHIM) 5,330.00p 2.21%
Investec (INVP) 586.00p 2.09%
Sirius Minerals (SXX) 34.08p 2.04%
Worldwide Healthcare Trust (WWH) 2,525.00p 2.02%

FTSE 250 - Fallers

Superdry (SDRY) 1,250.00p -19.35%
On The Beach Group (OTB) 556.00p -14.46%
TP ICAP (TCAP) 447.20p -7.01%
Stobart Group Ltd. (STOB) 231.00p -6.48%
TI Fluid Systems (TIFS) 246.00p -4.65%
Contour Global (GLO) 246.00p -3.91%
Polymetal International (POLY) 710.00p -3.06%
Card Factory (CARD) 217.40p -2.69%
Bakkavor Group (BAKK) 185.00p -2.63%
Daejan Holdings (DJAN) 6,070.00p -2.57%