London close: FTSE ends lower as pound rises on BoE inaction, Brexit ruling

The FTSE 100 closed down 0.80% on Thursday as the pound strengthened after the Bank of England stood pat on policy and the High Court ruled that Parliament must vote on Brexit.

The pound rose 1.11% versus the dollar to $1.2441 at 1635 GMT.

As expected, the BoE voted unanimously to keep interest rates at 0.25%, bond purchases at £435bn and corporate bond purchases at up to £10bn. The Bank cited better-than-expected third quarter economic growth data in its decision to sit tight on any policy changes. Previous to the data, the BoE had suggested the possibility of a rate cut in light of Brexit uncertainty.

“Given the stronger than expected GDP figures for Q3, it is not a surprise that the Bank has kept interest rates on hold. However, if the economy weakens in the coming quarters, a further cut to the base rate would be a real possibility," said Suren Thiru, head of economics at the British Chambers of Commerce.

In its latest Inflation Report, released alongside its policy announcement, the Bank revised its economic growth forecast to 2.2% this year, up from its prior 2.0% estimate.

Consumer price inflation is seen at 1.3% for the current year, up from the 1.2% calculation in the previous Inflation Report. Inflation for 2017 and 2018 is expected to rise to 2.7%, up from the prior 2.0% and 2.4% estimates respectively.

The Bank, which is targeting 2% inflation, said there are “limits to the extent to which above-target inflation can be tolerated".

“With the BoE equally open to a rate rise as a rate hike, a rise of inflation to 2.7% next year could put the bank in a tough position,” said IG’s Joshua Mahony.

“Given the possible challenges that will face the UK economy should we trigger article 50, it will be difficult for Carney and co to keep growth, jobs and inflation within target.”

Meanwhile, the High Court on Thursday said the government will not be allowed to invoke Article 50, which starts the process of leaving the EU, without a vote in Parliament.

The government said it was "disappointed" by the ruling and will appeal the decision to the Supreme Court for a hearing expected on 7 December.

Prime Minister Theresa May has previously said she will trigger Article 50 by the end of March 2017.

“The government will appeal the decision so it’s not game-over yet,” said CMC Markets market analyst Jasper Lawler. “But it’s another reason to be near-term positive on Sterling, which will weigh on prospects for the UK’s international-leaning stock market.”

In other UK news, the Markit/CIPS UK services purchasing managers' index rose to 54.5 from 52.6 the month before, which was ahead of the consensus estimate of 52.4 and the fastest expansion since January. A reading above 50 indicates an expansion in sector activity.

Weakness in the pound since the Brexit vote has driven a "marked intensification of cost pressures" among services companies, Markit said, with input price inflation surging to the highest since March 2011 and with the month-on-month acceleration a record since the survey began 20 years ago.

Elsewhere, Chinese service activity growth accelerated in October at the fastest pace in four months. The Caixin services PMI rose to 52.4 last month from 52.0 in September.

The Eurozone unemployment rate was steady in September at its lowest level in more than five years, according to the latest figures from Eurostat, in line with analysts’ expectations. The unemployment rate came in at 10%, unchanged from a downwardly-revised 10% the month before, and down from 10.6% in September last year. Eurostat’s previous estimate for August was 10.1%.

In the US, the Labor Department said initial jobless claims last week were up 7,000 from the previous week’s unrevised level to 265,000. Economists had been expecting claims to be unchanged at 258,000.

Markit’s final US services PMI rose to 54.8 in October, in line with the ‘flash’ estimate and up from 52.3 in the previous month.

In contrast, ISM’s non-manufacturing index fell to 54.8 in October from 57.1 in September. Economists had expected a reading of 56.0.

US factory orders climbed 0.3% in September after an upwardly revised 0.4% increase in August, the Commerce Department said.

In corporate news, biopharmaceutical company Shire got a boost as Bank of America-Merrill Lynch added the stock to its ‘Europe 1’ list with a ‘buy’ rating and 6,970p price target, saying the shares are too cheap. Citigroup was also pushing the stock ahead of the company’s capital markets day, saying the risk/reward is compelling.

Dixons Carphone rallied as Morgan Stanley upgraded the stock to ‘equalweight’ from ‘underweight’ and kept its price target at 315p.

Randgold Resources shares slumped despite positive results in its third quarter keeping it on track to meet its 2016 guidance, as metal prices declined.

Pharmaceutical giant GlaxoSmithKline was weaker as its stock went ex dividend.

Shawbrook gained after the challenger bank said organic originations were up 23% in the third quarter year-to-date to £1.5bn.

Satellite services provider Inmarsat was in the black after it reported a jump in third-quarter revenues following strong performances in the government and aviation divisions, but a drop in pre-tax profit.

Esure shares tumbled following the completion of the de-merger of price comparison website Gocompare.com.

Market Movers

FTSE 100 (UKX) 6,790.51 -0.80%
FTSE 250 (MCX) 17,581.91 0.68%
techMARK (TASX) 3,308.01 -0.33%

FTSE 100 - Risers

Royal Bank of Scotland Group (RBS) 193.90p 6.13%
Dixons Carphone (DC.) 341.50p 4.63%
British Land Company (BLND) 607.00p 3.76%
Marks & Spencer Group (MKS) 351.20p 3.20%
easyJet (EZJ) 997.50p 3.05%
Legal & General Group (LGEN) 213.60p 2.89%
Whitbread (WTB) 3,683.00p 2.82%
Land Securities Group (LAND) 1,007.00p 2.44%
Shire Plc (SHP) 4,539.00p 2.43%
Sainsbury (J) (SBRY) 258.60p 2.25%

FTSE 100 - Fallers

Randgold Resources Ltd. (RRS) 7,110.00p -6.26%
Fresnillo (FRES) 1,703.00p -4.33%
GlaxoSmithKline (GSK) 1,554.00p -3.27%
Johnson Matthey (JMAT) 3,265.00p -3.09%
Diageo (DGE) 2,070.50p -2.91%
Relx plc (REL) 1,391.00p -2.80%
Croda International (CRDA) 3,367.00p -2.72%
Anglo American (AAL) 1,100.00p -2.70%
Polymetal International (POLY) 924.00p -2.69%
Compass Group (CPG) 1,421.00p -2.47%

FTSE 250 - Risers

Shawbrook Group (SHAW) 242.30p 14.62%
Inmarsat (ISAT) 805.50p 10.34%
Lancashire Holdings Limited (LRE) 758.00p 6.91%
Indivior (INDV) 369.00p 5.31%
AO World (AO.) 168.00p 5.12%
Sports Direct International (SPD) 305.50p 4.51%
Debenhams (DEB) 56.00p 4.48%
CMC Markets (CMCX) 201.00p 4.15%
International Personal Finance (IPF) 303.50p 3.97%
Just Eat (JE.) 582.00p 3.93%

FTSE 250 - Fallers

esure Group (ESUR) 196.10p -26.22%
Evraz (EVR) 189.00p -7.35%
Howden Joinery Group (HWDN) 360.00p -5.73%
Playtech (PTEC) 874.00p -5.10%
Laird (LRD) 134.90p -4.12%
NMC Health (NMC) 1,421.00p -3.80%
Acacia Mining (ACA) 531.00p -3.73%
Petra Diamonds Ltd.(DI) (PDL) 149.10p -3.18%
Monks Inv Trust (MNKS) 518.00p -2.63%
Scottish Mortgage Inv Trust (SMT) 320.10p -2.19%