London close: FTSE ends higher as BoE takes action on Brexit

The FTSE 100 closed higher on Tuesday after the Bank of England eased rules for banks to encourage continued lending in the wake of Brexit.

In the BoE’s financial stability report, Governor Mark Carney said the central bank will loosen UK banks’ requirements to hold extra capital and warned that risks from the country's Brexit vote had already started to "crystallise".

In its twice-yearly report, it looked to encourage banks to keep lending by trimming the countercyclical capital buffer rate to 0% from 0.5% with immediate effect and until at least June 2017. It said the cuts to capital buffers will raise banks’ capacity for lending to UK households and businesses by up to £150bn.

“Overall, therefore, the Bank of England has taken action to ensure that credit supply is not interrupted, but it expects the UK economy to slow,” said Dominic Bryant, head of UK and European economics at BNP Paribas.

“The natural next step, therefore, is to take action to support demand. We continue to expect the Bank to cut rates by 25 basis points (bps) at its July meeting and a deliver a further 25bp cut in August in conjunction with GBP 50bn of QE. This is likely, in our view, to be followed up with a further GBP 50bn of quantitative easing in November. “

The pound plunged 1.81% to a fresh 31-year low against the dollar of $1.3046 following the financial stability report.

Adding to Brexit worries, a report by YouGov and the Centre for Economics and Business Research showed pessimism about the economic outlook almost doubled in the week following the June 23 EU referendum, rising to 49% from 25% the week before the outcome of the vote.

Meanwhile, data showed UK services expansion weakened in June to match April's 38-year low amid a darkening outlook and concerns about Brexit. The Markit/CIPS UK services purchasing managers’ index fell to 52.3 from 53.5 in May, missing economists’ expectations for a reading of 52.7.

Elsewhere, the eurozone services sector recorded a better-than-expected performance in June. June's services PMI reading rose to 52.8, beating the 52.4 from May and also the consensus forecast that this would be repeated for a second month, according to Markit.

Retail sales in the 19 countries that share the euro rose 0.4% in May, according to the latest figures from Eurostat. This was in line with economists’ expectations and marked the biggest monthly increase this year. Meanwhile, April’s flat reading was revised up to show a 0.2% increase.

In Asia, Chinese Caixin services PMI for June rose to 52.7 from 51.2, marking the fastest increase in 11 months.

In the US, factory orders dropped 1.0% in May, worse than forecasts for a 0.8% decline and compared to a 1.8% increase a month earlier, the Commerce Department revealed.

Company-wise, Legal & General slumped after Jefferies downgraded the stock to ‘hold’ from ‘buy’ and lowered the target price to 269p from 197p.

Standard Life was under the cosh after announcing it had suspended dealing in its UK Real Estate fund following a rapid increase in redemption requests. The announcement raised fears about the health of the property market, sending stocks in the sector lower including housebuilders Barratt Developments, Berkeley Group, Persimmon and Taylor Wimpey.

Whitbread dropped after Barclays downgraded the stock to ‘underweight’ from ‘equalweight’ and slashed the price target to 3,220p from 4,150p.

Supergroup rallied as Liberum upgraded the stock to ‘buy’ from ‘hold’ on valuation grounds, noting the stock is trading some 6% below its long-term average.

Shares in Shell were up a day after the company said it was applying to leave the giant legs of its three Brent field platforms in the North Sea when it completes decommissioning work.

Market Movers

FTSE 100 (UKX) 6,545.37 0.35%
FTSE 250 (MCX) 15,772.59 -2.14%
techMARK (TASX) 3,216.35 0.30%

FTSE 100 - Risers

Royal Dutch Shell 'B' (RDSB) 2,126.50p 2.95%
Royal Dutch Shell 'A' (RDSA) 2,108.50p 2.80%
GlaxoSmithKline (GSK) 1,645.00p 2.75%
British American Tobacco (BATS) 5,029.00p 2.54%
National Grid (NG.) 1,130.50p 2.35%
Unilever (ULVR) 3,678.50p 2.28%
Sage Group (SGE) 642.00p 2.23%
Hikma Pharmaceuticals (HIK) 2,543.00p 2.17%
ARM Holdings (ARM) 1,139.00p 2.15%
Relx plc (REL) 1,419.00p 2.09%

FTSE 100 - Fallers

Barratt Developments (BDEV) 350.30p -9.79%
Dixons Carphone (DC.) 286.70p -7.52%
Persimmon (PSN) 1,332.00p -7.18%
Taylor Wimpey (TW.) 121.40p -6.97%
Legal & General Group (LGEN) 174.20p -6.84%
Berkeley Group Holdings (The) (BKG) 2,327.00p -6.36%
Travis Perkins (TPK) 1,318.00p -5.45%
Royal Bank of Scotland Group (RBS) 158.50p -5.37%
Hargreaves Lansdown (HL.) 1,130.00p -5.20%
Standard Life (SL.) 271.60p -5.20%

FTSE 250 - Risers

Sophos Group (SOPH) 216.70p 2.70%
Acacia Mining (ACA) 496.60p 2.69%
Worldwide Healthcare Trust (WWH) 1,946.00p 1.88%
JPMorgan American Inv Trust (JAM) 314.00p 1.85%
Tate & Lyle (TATE) 694.50p 1.83%
Supergroup (SGP) 1,250.00p 1.71%
Edinburgh Inv Trust (EDIN) 674.00p 1.35%
Murray International Trust (MYI) 1,001.00p 1.11%
Victrex plc (VCT) 1,521.00p 0.80%
Croda International (CRDA) 3,190.00p 0.79%

FTSE 250 - Fallers

Shawbrook Group (SHAW) 138.30p -14.31%
Virgin Money Holdings (UK) (VM.) 220.00p -13.59%
OneSavings Bank (OSB) 180.20p -11.58%
Amec Foster Wheeler (AMFW) 434.70p -10.78%
Aldermore Group (ALD) 110.10p -10.56%
Ibstock (IBST) 119.20p -10.31%
St. Modwen Properties (SMP) 232.50p -10.30%
McCarthy & Stone (MCS) 147.00p -8.98%
Bellway (BWY) 1,697.00p -8.22%
Bovis Homes Group (BVS) 649.50p -8.00%