London midday: Stocks drop as pound shoots higher on hawkish BoE rhetoric

London stocks were extending losses by midday as the pound shot higher after the Bank of England signalled that rates were set to rise faster than forecast.

The FTSE 100 was down 0.3% to 7,359.36, weighed down by a stronger pound as the Monetary Policy Committee kept interest rates on hold at their current record low of 0.25%, as expected, with a 7-2 split in the vote. Michael Saunders and Ian McCafferty were not joined by anyone else as they again voted to raise interest to 0.5%.

The pound quickly gained 0.6% against the euro to 1.1186 and spiked 0.7% versus the dollar back above 1.33 for the second time this week, having traded broadly flat against both currencies ahead of the announcement. Sterling was lifted by hawkish rhetoric from the BoE.

A statement from the rate-setting committee said: "A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.

"All members agree that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent."

The MPC voted unanimously to keep its government bond-buying programme at £435bn and its corporate bond purchases at £10bn.

Neil Wilson at ETX Capital said: "The key passage was towards the end of the minutes where the Bank offered a clear signal that a hike may be coming.

"A majority of MPC members agree that as long as the economy trundles along as is, then some withdrawal of stimulus would be appropriate. It’s clearly teeing up a rate rise and wants the markets to prepare for one. Given the economy is not exactly motoring, the bar for a hike has just been lowered. The odds of a hike back to 0.5% this year have just shortened with sterling is firming as a result. This should offer solid support for the pound going into the final quarter and means a move below $1.30 is a lot less likely.”

On the corporate front, mining stocks were under pressure as base metals prices dropped after Chinese data revealed a surprise slowdown in business activity last month. Real estate investment grew in August, but factory output, fixed asset investment and retail sales all missed analysts' expectations. Rio Tinto, BHP Billiton, Glencore, and Anglo American were all weaker.

Morrisons was under the cosh after the grocer reported a rise in profits and sales for the half year, but with like-for-like momentum slowing and free cash flow down.

Thomas Cook slipped after announcing a strategic tie-up with Expedia, while Spire Healthcare tumbled after reporting a 75% drop in first-half profit after tax and revising its outlook for the year.

Retailers were a bright spot, however, as investors chose to focus on a sales and profit target upgrade from Next, brushing off news that half-year profits at privately held John Lewis more than halved. Next jumped 10%, while Marks & Spencer and Primark owner Associated British Foods were up 3.2% and 1.3%, respectively.

Sky edged up despite its takeover by 21st Century Fox being referred by Culture Secretary Karen Bradley for an in-depth investigation due to concerns over broadcasting standards and 'media plurality'.

AstraZeneca got a shot in the arm by announcing an agreement where Aspen Group will now acquire the residual rights to a portfolio of anaesthetic medicines outside the US.

JD Sports was trading higher after confirming a combination of its existing business in Iberia with the Sport Zone business, while GKN was on the front foot as it said chief executive Nigel Stein will step down at the end of this year, with finance director Adam Walker also leaving before the end of 2017.

Online gaming group GVC Holdings rallied as it posted a jump in revenue for the first half, and wholesaler Booker edged up as it reported a 1.3% jump in second-quarter like-for like sales.

UDG Healthcare rose as it acquired US-based MicroMass Communications for up to $75.8m.

Market Movers

FTSE 100 (UKX) 7,359.36 -0.28%
FTSE 250 (MCX) 19,640.43 0.26%
techMARK (TASX) 3,459.59 0.02%

FTSE 100 - Risers

Next (NXT) 4,868.00p 10.21%
GKN (GKN) 337.20p 3.06%
Marks & Spencer Group (MKS) 333.40p 2.74%
Sage Group (SGE) 712.00p 1.42%
Ashtead Group (AHT) 1,793.00p 1.36%
Associated British Foods (ABF) 3,191.00p 1.11%
Tesco (TSCO) 183.35p 0.94%
British Land Company (BLND) 607.50p 0.75%
Land Securities Group (LAND) 995.50p 0.71%
Ferguson (FERG) 4,681.00p 0.69%

FTSE 100 - Fallers

Morrison (Wm) Supermarkets (MRW) 232.30p -5.18%
Experian (EXPN) 1,485.00p -3.13%
Mediclinic International (MDC) 714.00p -2.79%
Provident Financial (PFG) 823.50p -2.66%
Rio Tinto (RIO) 3,551.00p -2.03%
BHP Billiton (BLT) 1,381.00p -1.95%
Shire Plc (SHP) 3,969.50p -1.90%
Anglo American (AAL) 1,325.50p -1.74%
Glencore (GLEN) 357.50p -1.68%
Standard Life Aberdeen (SLA) 413.20p -1.34%

FTSE 250 - Risers

Tullow Oil (TLW) 164.70p 4.90%
GVC Holdings (GVC) 836.00p 4.57%
Auto Trader Group (AUTO) 371.90p 3.62%
FDM Group (Holdings) (FDM) 925.00p 2.78%
Ultra Electronics Holdings (ULE) 1,784.00p 2.59%
Cairn Energy (CNE) 185.30p 2.38%
UDG Healthcare Public Limited Company (UDG) 867.50p 2.36%
Ascential (ASCL) 373.80p 2.21%
Hunting (HTG) 435.80p 2.08%
esure Group (ESUR) 261.40p 2.07%

FTSE 250 - Fallers

Spire Healthcare Group (SPI) 256.10p -17.36%
McCarthy & Stone (MCS) 146.10p -5.74%
Euromoney Institutional Investor (ERM) 1,126.00p -3.35%
Evraz (EVR) 299.50p -3.14%
Restaurant Group (RTN) 299.50p -2.89%
Ferrexpo (FXPO) 307.20p -2.78%
Kaz Minerals (KAZ) 748.50p -2.60%
IP Group (IPO) 121.90p -2.40%
Hochschild Mining (HOC) 253.50p -2.20%
OneSavings Bank (OSB) 395.40p -2.18%