London midday: FTSE extends losses as pound rallies on hawkish BoE

London equity markets extended losses just after midday on Thursday as the pound spiked higher on the back of an unexpectedly hawkish announcement from the Bank of England.

The BoE voted unanimously to leave interest rates on hold at 0.50% and the asset purchase facility at £435bn. Rates had been expected to remain on hold, but there had been some speculation that one or two policymakers would vote in favour of a hike.

The pound shot higher, trading up 0.8% against the dollar to 1.3991 and 1% higher versus the euro at 1.1429 as the BoE also upped its forecasts for economic growth and said that interest rates may need to rise earlier and faster than previously forecast. It also said it expects stronger wage growth than previously and that inflation is still forecast to be above the 2% target in three years' time.

According to the minutes of the last meeting, the Monetary Policy Committee agreed that "monetary policy would need to be tightened somewhat earlier and by a somewhat greater degree over the forecast period than anticipated at the time of the November report".

As sterling gained, the FTSE 100 took another leg lower, trading down 0.9% to 7,216.08. A stronger pound tends to dent the top-flight index as around 70% of its constituents derive a large chunk of their earnings from overseas.

Capital Economics' Paul Hollingsworth said: "Note that the MPC (as we had anticipated) appears to be shifting its view of the appropriate time horizon over which to bring inflation back to target. Until now, it has been happy to let inflation overshoot the target even after three years. However, the minutes stated that 'a more conventional horizon' was now appropriate. Typically, the MPC aims to get inflation back to target over a 18-24 month horizon."

The Inflation Report released by the central bank showed forecasts for CPI inflation to ease to 2.2% in two years’ time. This suggests markets may not have gone far enough, Hollingsworth added. "As a result, today’s releases pave the way for an interest rate hike in May, and we think that the MPC will hike a further two times this year, taking Bank Rate to 1.25%."

Heavily-weighted miners fell as copper prices declined, with BHP Billiton, Antofagasta, Rio Tinto, Glencore and Anglo American all in the red. There were also calls from a South Africa mines minister for local mining industry to "shape up" and speed the transformation towards more black ownership.

Sophos shares tumbled as the cyber security solutions provider reported a 19.6% drop in adjusted operating profit for the third quarter. Billings rose 14% in the three months to the end of December, down from a growth rate of 23% in the first half.

TalkTalk tanked after saying it’s looking to raise £200m in a placing to bolster its balance sheet and warning that full-year earnings before interest, tax, depreciation and amortisation would come in below the guidance given in November.

Thomas Cook was in the red after it said it remained on track to meet full-year forecasts but warned that the market remains highly competitive.

Bellway declined despite saying that housing revenue for the six months to the end of January 2018 is expected to rise to around £1.3bn from £1.1bn in the same period a year ago amid strong demand.

Qinetiq fell after saying it traded as expected in the third quarter and maintaining its expectations for its overall performance in FY18, while Tate & Lyle lost ground despite saying that it's on track to deliver full-year adjusted pre-tax profit in line with guidance at constant currency.

Ashmore was weaker as it posted a drop in half-year profit but a rise in assets under management, while hotel group Millennium & Copthorne lost ground after it reported a jump in fourth-quarter pre-tax profit but cut its dividend to preserve cash for investment.

Roadside assistance and insurance group AA reversed earlier strong gains after saying full-year trading EBITDA is expected to come in at £390m to £395m, in line with the guidance provided in September.

On the upside, Compass was the standout gainer after it served up a first quarter update showing improved revenue growth but the catering group said UK cost pressures were "above average".

GlaxoSmithKline advanced as ViiV Healthcare, the global specialist HIV company majority-owned by the group with Pfizer Inc. and Shionogi Limited as shareholders, said it has filed patent infringement litigation against Gilead Sciences over bictegravir in the United States and Canada.

Advertising giant WPP rose as 2017 earnings from French rival Publicis met analysts' expectations and the company said organic growth improved throughout 2017.

Beazley was up as its full-year pre-tax profit came in slightly ahead of consensus expectations and it lifted its premium income growth guidance from mid-to-high single digit to double digit.

Smith & Nephew edged higher after it reported a 17% rise in annual profit as the medical products company sold more knee implants and grew strongly in emerging markets.

Market Movers

FTSE 100 (UKX) 7,216.08 -0.87%
FTSE 250 (MCX) 19,556.02 -0.69%
techMARK (TASX) 3,283.25 -0.26%

FTSE 100 - Risers

Compass Group (CPG) 1,505.00p 4.73%
GlaxoSmithKline (GSK) 1,325.00p 3.08%
WPP (WPP) 1,295.00p 2.66%
AstraZeneca (AZN) 4,867.00p 1.62%
GKN (GKN) 417.50p 1.41%
Sainsbury (J) (SBRY) 243.70p 0.62%
Bunzl (BNZL) 2,058.00p 0.59%
Centrica (CNA) 128.50p 0.55%
Tesco (TSCO) 203.60p 0.54%
Kingfisher (KGF) 352.30p 0.51%

FTSE 100 - Fallers

BHP Billiton (BLT) 1,457.20p -3.64%
Evraz (EVR) 345.20p -2.73%
Randgold Resources Ltd. (RRS) 6,048.00p -2.67%
Sage Group (SGE) 695.00p -2.66%
Antofagasta (ANTO) 876.00p -2.60%
Anglo American (AAL) 1,599.20p -2.56%
Rio Tinto (RIO) 3,781.50p -2.55%
CRH (CRH) 2,428.00p -2.53%
Glencore (GLEN) 368.65p -2.50%
DCC (DCC) 6,920.00p -2.19%

FTSE 250 - Risers

Beazley (BEZ) 558.00p 4.99%
Dignity (DTY) 781.50p 4.41%
Stobart Group Ltd. (STOB) 251.00p 4.15%
McCarthy & Stone (MCS) 152.20p 3.05%
Ted Baker (TED) 3,088.00p 2.93%
TP ICAP (TCAP) 554.20p 2.90%
Stagecoach Group (SGC) 139.80p 2.79%
Vectura Group (VEC) 82.90p 2.73%
Balfour Beatty (BBY) 276.90p 2.71%
Hiscox Limited (DI) (HSX) 1,379.00p 2.68%

FTSE 250 - Fallers

Sophos Group (SOPH) 542.25p -12.75%
TalkTalk Telecom Group (TALK) 108.10p -9.69%
Thomas Cook Group (TCG) 117.80p -5.99%
Tate & Lyle (TATE) 620.40p -5.05%
Petrofac Ltd. (PFC) 433.00p -5.02%
Vedanta Resources (VED) 722.40p -4.95%
Sanne Group (SNN) 627.00p -4.71%
Capita (CPI) 190.75p -3.81%
Ferrexpo (FXPO) 269.00p -3.06%
Man Group (EMG) 195.45p -2.76%