London close: Stocks finish lower as BoE stands pat on rates
London stocks closed on the red on Thursday, after the Bank of England stood pat on interest rates and warned the economic recovery would take longer than expected.
The FTSE 100 ended the session down 1.27% at 6,026.94, and the FTSE 250 was 0.9% weaker at 17,479.38.
Sterling was trading stronger, last rising 0.37% against the dollar to $1.3163, and advancing 018% on the euro to €1.1074.
Tensions between the US and China were front and centre as New York markets opened during the afternoon, given lawmakers there are yet to reach agreement on a fresh round of coronavirus stimulus.
“US politicians have yet to reach a compromise with regards to the Covid-19 stimulus package, and President Trump threatened to act alone in relation to a stimulus plan because the Democrats wouldn’t bend,” said CMC Markets analyst David Madden.
“Mr Trump is known to be hot-headed but at the same time, he has form when it comes to making idle threats.
“The US government’s relationship with China is under pressure as Washington DC is moving towards banning WeChat and TikTok apps - both are Chinese owned.”
Earlier, policymakers on Threadneedle Street voted unanimously to leave interest rates at a record low of 0.1% and the asset purchase programme at £745bn, as expected.
The BoE said the economy will not return to its pre-Covid levels until the end of next year.
In May, it said that would happen in the second half of 2021.
It was now expecting the economy to shrink 9.5% this year, compared to a previous forecast for a 14.5% contraction, but it also revised 2021 growth down to 9% from 15%.
Inflation is expected to fall further below the BoE’s 2% target and average at around 0.25% in the latter part of the year .
The Bank indicated that it is willing to keep policy loose even when inflation rises to 2%.
"The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably," it said.
Unemployment in the UK is set to rise to around 7.5% by the end of the year, and decline to 6% next year.
“Given that the £300bn of asset purchases announced between March and June will not be completed until 'the turn of the year', today’s unanimous decision by the MPC to leave policy unchanged was unsurprising and suggests that the MPC thinks that it has done enough for now,” said Ruth Gregory, senior UK economist at Capital Economics.
“But we still think that the Bank will eventually expand QE by a further £250bn by the end of 2021.”
Investors were also digesting the latest reading on UK construction, which showed that output in the sector expanded in July at its steepest pace since October 2015, but job losses accelerated.
The Markit/CIPS construction purchasing managers’ index rose to 58.1 from 55.3 in June, beating expectations for a reading of 57.0.
It was above the 50.0 level that separates contraction from expansion for the second month in a row, with residential building the main driver of growth as activity in the sector rose to the greatest extent since September 2014.
Survey respondents pointed to pent-up demand and reduced anxiety among clients.
However, the survey also found that jobs were shed at a faster rate than in June, with around one in three respondents reporting a fall in employment.
There were reports that some clients remained "apprehensive" about committing to new projects, resulting in intense competition to secure sales and squeezed margins.
In equity markets, Glencore lost 8.08% after it scrapped its deferred $2.6bn dividend to bolster its balance sheet as half-year profits fell on weak commodity prices and the Covid-19 pandemic but oil trading posted record profits.
Outsourcer Serco fell 15.17% even as it said interim profits rose 53% on the back of demand from governments for its services during the pandemic and purchase of a US naval systems unit last year.
Defence engineering firm Meggitt was under the cosh by 4.3% as it insisted that its financial position is "strong" and said it was considering its options following a press report that it is looking at an equity offering of up to $600m.
Shopping centre owner Hammerson retreated 15.26% after announcing plans to raise around £825m through a rights issue and the sale of its 50% interest in Via Outlets to help counter the impact of the pandemic.
On the upside, paper and packaging group Mondi rose 3.12% as it restarted paying dividends and reported a 26% decline in first-half profit after the Covid-19 crisis reduced demand for its products.
ITV reversed earlier losses to close up 3.94%, after the broadcaster said first-half profit was almost wiped out as the Covid-19 crisis caused revenue to plunge and exceptional costs to increase.
Insurer Aviva closed 4.64% higher after it reinstated its dividend but said it would review its payout policy as half-year profit fell on coronavirus-related and weather claims.
FTSE 100 - Risers
Pearson (PSON) 605.00p 7.84%
Aviva (AV.) 297.50p 4.64%
ITV (ITV) 63.30p 3.94%
Mondi (MNDI) 1,469.50p 3.12%
GVC Holdings (GVC) 724.00p 2.87%
Phoenix Group Holdings (PHNX) 708.20p 2.58%
Associated British Foods (ABF) 1,877.50p 1.13%
Compass Group (CPG) 1,169.50p 1.08%
JD Sports Fashion (JD.) 655.40p 0.83%
Legal & General Group (LGEN) 224.70p 0.76%
FTSE 100 - Fallers
Glencore (GLEN) 180.34p -8.08%
Land Securities Group (LAND) 579.80p -4.95%
Rio Tinto (RIO) 4,720.00p -4.80%
Taylor Wimpey (TW.) 118.35p -4.32%
International Consolidated Airlines Group SA (CDI) (IAG) 186.10p -3.97%
Barratt Developments (BDEV) 500.00p -3.88%
Persimmon (PSN) 2,364.00p -3.75%
BP (BP.) 295.25p -3.72%
BAE Systems (BA.) 507.80p -3.24%
British Land Company (BLND) 370.00p -2.68%
FTSE 250 - Risers
Aston Martin Lagonda Global Holdings (AML) 64.80p 6.23%
Ascential (ASCL) 283.00p 4.12%
XP Power Ltd. (DI) (XPP) 4,300.00p 4.12%
Greggs (GRG) 1,353.00p 3.76%
Frasers Group (FRAS) 270.60p 3.12%
William Hill (WMH) 131.00p 2.66%
Dechra Pharmaceuticals (DPH) 3,094.00p 2.38%
Games Workshop Group (GAW) 9,350.00p 2.19%
Synthomer (SYNT) 301.80p 2.17%
Gamesys Group (GYS) 1,012.00p 2.12%
FTSE 250 - Fallers
Hammerson (HMSO) 47.42p -15.26%
Serco Group (SRP) 143.70p -15.17%
WH Smith (SMWH) 914.50p -8.50%
Cineworld Group (CINE) 35.25p -7.24%
Go-Ahead Group (GOG) 598.00p -6.56%
Sabre Insurance Group (SBRE) 262.50p -5.91%
Energean (ENOG) 600.00p -5.81%
National Express Group (NEX) 155.20p -5.65%
Petropavlovsk (POG) 35.00p -5.41%
Cairn Energy (CNE) 131.00p -5.35%