FTSE 100 takes 0.50% UK interest rate in its stride, pound slips
The City was expecting the Bank of England’s double-strength rate rise and after it was confirmed, London’s equity markets were stronger.
There was a modest gain of 24 points for the FTSE 100, taking it to 7468.91, up 0.3%. The more UK-focused FTSE 250 made a stronger gain, rising 128 points to 20147.98, up 0.8%.
The pound was modestly lower on the day against the dollar, at $1.2116, down 0.2%.
“We’ve argued that the Bank is probably nearing the end of its tightening cycle. But even if that’s the prevailing view on the committee, we doubt they will say so this week,” said analysis from the Dutch Bank ING in the run-up to the rate call.
“Partly that’s just because everything is so uncertain right now. But also because the hawks in particular won’t want to see UK-US rate differentials widen materially at this stage, amid concerns about adding to recent sterling weakness.”
The 0.50% rate hike was the largest in almost 30 years and double the BoE’s usual step of 0.25%, but it was also widely expected.
Bank of England lifts UK interest rates to 1.75% in 0.50% rise, ups inflation forecast to 13%
The Bank of England has lifted UK interest rates by 0.50% to 1.75% , as widely expected by City forecasters, as it steps up its efforts to tame inflation.
It also increased its forecast for inflation to peak at 13%, a significant revision from the levels seen in its last inflation reports and the 11% level policy makers last anticipated the Consumer Price Index (CPI) to reach before edging back.
“CPI inflation is expected to rise more than forecast in the May Report, from 9.4% in June to just over 13% in 2022 Q4, and to remain at very elevated levels throughout much of 2023, before falling to the 2% target two years ahead,” the BoE said.
There was just one vote against the move, which was double the BoE’s usual increases of 0.25%, on the nine-member Monetary Policy Committee (MPC). One member voted for a rise of 0.25%.
The BoE said monetary policy “is not on a pre-set path”, and said the “scale, pace and timing” of any further changes to rates would come with the MPC “particularly alert to indications of more persistent inflationary pressures” pledging it will “act forcefully in response” if necessary.
It is the sixth consecutive hike since December and the biggest increase in the cost of borrowing for 27 years. It will mean an immediate increase in mortgage bills for millions of home owners on tracker or variable mortgages that move in line with the Bank of England rate.
Go-Ahead takeover proceeds after increased £670m offer
London bus and commuter train operator Go-Ahead Group has been bought for £670 million by Australia’s Kinetic Holding and Spanish operator Globalvia Inversiones after the company agreed to an increased takeover offer.
The Newcastle-based company runs nearly a quarter of London’s buses and Govia Thameslink Railway consisting of Great Northern, Thameslink, Gatwick Express and the Southern network.
It originally agreed in June to be bought by the consortium for £647.7m but another Australian transit business, Kelsian, announced that it would not be making a rival approach, citing “volatile and external events” for the decision.
Under the terms of the increased offer that includes a special dividend of 100 pence, Go-Ahead shareholders will receive 1,550 pence for each share. The previous approach had a special dividend of 50 pence per share.
Michael Sewards, co-CEO of Kinetic, and Javier Pérez Fortea, boss of Globalvia, said: “This transaction will create a leading global, multimodal, mass transit platform. Given our track record and experience we will provide long-term capital and expertise to support the acceleration of Go-Ahead’s strategy and transition to net zero.”
Return of flying lifts revenue at Rolls-Royce
Rolls-Royce today said it expects the amount of flying time for its engines to return to pre-pandemic levels in 2024 as revenues continue to recover but warned of problems recruiting engineers in the UK’s tight labour market.
The company is paid by customers based on the number of hours its world-famous engines are used so its revenue streams took a massive hit when airlines were grounded during Covid-19 travel restrictions. Underlying revenue in the first half of the year was £5.3 billion, up 4%, helped by an increase in the amount of flying time as air travel returned.
“Engine flying hours are expected to maintain the current trajectory and return to pre-pandemic levels in 2024 as global travel restrictions are lifted,” it said as it reported an underlying loss of £188 million for the period. The Derby-based company also said on recruitment: “We have faced some challenges in hiring, particularly for experienced engineers.”
“We are actively managing the impacts of a number of challenges, including rising inflation and supply chain disruption, with a sharper focus on pricing, productivity and costs,” said CEO Warren East, who has announced his departure.
Serco guidance lifts shares, Ocado up 5%
Serco’s recent share price resurgence continued today as the outsourcer produced another profits upgrade.
Serco, whose public sector work includes immigration services and London cycle hire, reported a 6% rise in half-year underlying profits to £130 million despite a drag on revenues from the ending of contracts linked to Covid. It also nudged up its full-year guidance, on top of a big increase in May.
Shares have risen by a third this year and added a further 2.4p to 187.4p today as chief executive Rupert Soames said the order book had grown another £500 million to £14.6 billion.
Serco’s strong performance came during another robust session for the FTSE 250 index, which climbed 95.53 points to 20,114.37 after a helping hand from retail stocks including Marks & Spencer and Pets at Home.
Medical products business ConvaTec posted the biggest increase in the FTSE 250, with its shares up 7% or 16.8p to 247p after the company cheered investors by announcing an unchanged dividend and also sticking by guidance for the full year.
The performance of the FTSE 100 was more subdued, partly due to stocks including BT, Lloyds and Unilever trading without the right to the latest dividend.
The FTSE 100 slipped 19.78 points to 7425.90, with Hikma Pharmaceuticals down 9% or 161.5p to 1600.5p after it lowered full-year guidance due to the impact of “persistent challenges” in the US generics market.
The recent revival for Ocado shares continued as the grocery technology business added 6% or 55.4p to 967.6p, while Smith & Nephew rose 25p to 1075p following the ConvaTec results. Investors also returned to Admiral shares as the car insurer rallied 49p to 1977p.
Retail cheer lifts M&S shares 2%, Rolls-Royce down 5%
Marks & Spencer and other shares in the retail sector are higher on the back of today’s encouraging trading update by Next.
The latest signs of high street spending resilience helped FTSE 100-listed JD Sports Fashion and B&M European Value Retail to improve 2% while Next rose 152p to 6898p.
The FTSE 100 edged up 4.61 points to 7450.29, but there was another setback for Rolls-Royce investors as shares retreated 5% or 4.35p to 86.44p in the wake of interim results.
In the FTSE 250, M&S surged 2% or 3.25p to 140.55p and Pets at Home lifted 10.2p to 344.6p. Other second-tier stocks on the front foot included outsourcing firm Serco after its half-year results sent shares 3% or 5.9p higher to 190.9p.
The FTSE 250 index was 113.65 points higher at 20,132.49.
Next shares rally on raised guidance
Next continues to defy tough retail conditions, reporting second quarter full-price sales growth of 5% for a £50 million upgrade on previous guidance.
It said there had been a sharp reversal of lockdown trends, with a recovery for store sales and online growth back to the long term trajectory.
The chain said: “Many product trends have also returned to pre-pandemic norms. Lockdown winners such as home and sportswear retreated, while formalwear returned to favour.”
Next increased its full-year profits guidance by £10 million to £860 million, an increase of 4.5% versus last year.
Shares rose 130p to 6876p today.
US markets rally, Brent crude at $96
Wall Street posted a strong session last night after corporate earnings and a better-than-expected update from the US services sector allayed recession fears.
Tech stocks led the rally as the Nasdaq surged 2.6%, ahead of 1.6% for the S&P 500 and 1.3% advance for the Dow Jones Industrial Average.
Brent crude, meanwhile, traded at $96 a barrel today after one of the smallest production increases in OPEC history saw the cartel agree to add 100,000 a barrels a day in September.
The price fell sharply yesterday as traders focused on figures showing higher US crude inventories and signs that Americans are driving less than they did in the summer of 2020.
Attention now turns to the Bank of England, where policymakers could raise interest rates by 0.5% for the first time since the Monetary Policy Committee was set up in 1997.
The Bank has hiked by 0.25% at every meeting since December, but with little sign that any of these increases have done much to slow inflation. The consumer prices index hit 9.4% in June and is poised to go much higher as energy prices rise.
Michael Hewson, chief market analyst at CMC Markets, said: “The Bank is understandably concerned about the effect that any rate rise could have on the UK economy, and it is undoubtedly slowing.
“However there is no easy option here, given they are already well behind the curve.”
CMC expects the FTSE 100 index to open unchanged at 7445.