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FTSE 100 higher ahead of Bank decision Pound jumps as Bank keeps rates on hold
(about 4 hours later)
UK shares and the pound rose ahead of the latest announcement from the Bank of England, which is widely expected to cut interest rates. The pound jumped and shares fell after the Bank of England stunned the markets by keeping interest rates on hold.
In early trade, the FTSE 100 was up 48.35 points, or 0.7%, at 6,722.60. Markets had been betting that the Bank would cut rates from 0.5% to 0.25% at the very least.
After sliding late on Wednesday, the pound recovered, rising 0.6% against the dollar to $1.3224 and 0.5% against the euro to €1.1910. However, the Bank's Monetary Policy Committee voted by 8-1 to hold rates, although minutes of the meeting showed they "expect monetary policy to be loosened in August".
Markets are expecting the Bank to cut rates from the current record low of 0.5% to 0.25%, and possibly to 0%. The pound was up 1.4%, nearly two cents, against the dollar at $1.3326.
The Bank's decision will be announced at midday, but not everyone is convinced a rate cut will happen. Against the euro, sterling was 1.2% higher at €1.1991.
"Will the Bank of England cut rates? While widely expected to slash interest rates by 25 basis points to 0.25%, it's not a done deal by any means," said Neil Wilson from ETX Capital. The FTSE 100 share index had been trading higher ahead of the Bank's decision, but news of the rate freeze wiped out the gains, with the index barely changed on the day at 6,670.31.
"Critically, we just haven't had enough data yet on the economic impact of Brexit. The MPC [Monetary Policy Committee] may want to wait until August, when we will have the first genuine post-Brexit PMI surveys, before shifting monetary policy." "The Bank of England surprised markets again by leaving rates on hold at 0.5% and leaving QE unaltered. But it should not have come as a total shock, as there was always a strong chance the Bank would stand pat," said Neil Wilson at ETX Capital.
After losing ground on Wednesday, property-related shares rebounded again, with Barratt Developments up 3.6% and Taylor Wimpey 2.3% higher. "But alongside the inaction, we got an extremely dovish signal from the Bank's Monetary Policy Committee that helped calm markets, which had been expecting a lot more.
In the FTSE 250, shares in recruitment firm Hays jumped 10% after it said full-year operating profits were set to reach £180m, which was better than expected. "It's clear that the MPC thinks there just hasn't been enough economic data since the Brexit to warrant further easing just yet. The Bank has kept its powder dry and has more ammunition to ease at a later date if required."
Among individual shares, recruitment firm Hays was 4.4% higher after it said full-year operating profits were set to reach £180m, which was better than expected.
Halfords shares slid 1% after it said sales of bikes had fallen in the first quarter, which the company blamed on poor weather and the timing of Easter.Halfords shares slid 1% after it said sales of bikes had fallen in the first quarter, which the company blamed on poor weather and the timing of Easter.
Shares in Mothercare rose 2.8%, despite the baby products retailer saying that its UK sales had also been affected by the wet weather. Shares in Mothercare rose 1.3%, despite the baby products retailer saying that its UK sales had also been affected by the wet weather.
Underlying sales in the UK rose by 1.2% in the three months to 9 July, but this was slower growth than seen in previous quarters.Underlying sales in the UK rose by 1.2% in the three months to 9 July, but this was slower growth than seen in previous quarters.
Shares in Supergroup, the company behind the Superdry brand, jumped 14% after it reported a 16% rise in underlying pre-tax profit to £73.5m and said it would pay a special dividend.