London open: Stocks in the red as BoE leaves rates, asset purchases unchanged
London stocks fell in early trade on Thursday after the Bank of England stood pat on interest rates and said the economic downturn caused by the pandemic will be less severe than previously thought but last longer.
At 0830 BST, the FTSE 100 was down 1.2% at 6,032.56, while sterling was up 0.5% against the dollar at 1.3173 after policymakers voted unanimously to leave interest rates at a record low of 0.1% and the asset purchase programme at £745bn, as anticipated.
The BoE said the economy will not return to its pre-Covid levels until the end of next year. In May, it had said this would happen in the second half of 2021. The economy is now expected to shrink 9.5% this year, compared to a previous forecast for a 14.5% contraction. However, it also revised 2021 growth down to 9% from 15%.
Inflation is expected to fall further below the Bank's 2% target and average at around 0.25% in the latter part of the year .
The BoE 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.
The unemployment rate is set to rise to around 7.5% by the end of the year and decline to 6% next year.
Ruth Gregory, senior UK economist at Capital Economics, said: "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.
"But we still think that the Bank will eventually expand QE by a further £250bn by the end of 2021."
In equity markets, Glencore was the worst performer on the FTSE 100 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.
ITV was in the red 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.
Outsourcer Serco fell 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 as it insisted that its financial position is "strong" following a press report it is considering an equity offering of up to $600m.
Shopping centre owner Hammerson lost ground 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 rallied as it restarted paying dividends and reported a 26% decline in first-half profit after the Covid-19 crisis reduced demand for its products.
Insurer Aviva was trading 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
Mondi (MNDI) 1,497.00p 5.05%
Aviva (AV.) 296.70p 4.36%
Phoenix Group Holdings (PHNX) 713.60p 3.36%
Halma (HLMA) 2,211.00p 0.41%
Smith (DS) (SMDS) 274.00p 0.37%
St James's Place (STJ) 985.40p 0.35%
GVC Holdings (GVC) 706.20p 0.34%
Smurfit Kappa Group (SKG) 2,648.00p 0.23%
Spirax-Sarco Engineering (SPX) 10,450.00p 0.10%
Barratt Developments (BDEV) 520.40p 0.04%
FTSE 100 - Fallers
Glencore (GLEN) 188.00p -4.18%
Evraz (EVR) 310.00p -3.70%
Rio Tinto (RIO) 4,778.50p -3.62%
BAE Systems (BA.) 508.60p -3.09%
ITV (ITV) 59.10p -2.96%
Land Securities Group (LAND) 594.90p -2.48%
Standard Chartered (STAN) 393.90p -2.35%
SEGRO (SGRO) 965.00p -2.29%
BP (BP.) 300.20p -2.10%
Unilever (ULVR) 4,567.00p -2.06%
FTSE 250 - Risers
XP Power Ltd. (DI) (XPP) 4,250.00p 2.91%
Coats Group (COA) 62.00p 2.48%
Synthomer (SYNT) 300.20p 1.62%
Morgan Sindall Group (MGNS) 1,240.00p 1.47%
Fidelity China Special Situations (FCSS) 318.00p 1.44%
TR Property Inv Trust (TRY) 376.00p 1.35%
Games Workshop Group (GAW) 9,260.00p 1.20%
Fisher (James) & Sons (FSJ) 1,116.00p 0.90%
Civitas Social Housing (CSH) 113.60p 0.71%
Monks Inv Trust (MNKS) 1,138.00p 0.53%
FTSE 250 - Fallers
Serco Group (SRP) 157.80p -6.85%
Meggitt (MGGT) 275.90p -6.54%
AO World (AO.) 161.20p -5.18%
Jupiter Fund Management (JUP) 220.00p -4.60%
Hammerson (HMSO) 53.48p -4.43%
Pagegroup (PAGE) 369.00p -3.96%
IMI (IMI) 1,044.00p -3.51%
WH Smith (SMWH) 970.00p -2.95%
C&C Group (CCR) 223.00p -2.83%
Micro Focus International (MCRO) 298.40p -2.80%