London close: FTSE gains as Carney says interest rate cut likely after Brexit

The FTSE 100 ended higher on Thursday as Boris Johnson bowed out of the race for Prime Minister and the Bank of England governor said an interest rate cut was likely after Brexit.

Johnson, the former London mayor, announced his decision not to run for Prime Minister in a speech on Thursday after Justice Secretary Michael Gove made a surprise late bid for the contest to succeed David Cameron.

Home Secretary Theresa May also threw her hat into the ring in what is now expected to be a very bloody contest, with bookmaker Ladbrokes making her the 4/7 favourite over Gove at 11/4 after Johnson's withdrawal.

“Her position as a reluctant ‘remainer’ may not go down well with the more ardent Brexiteers but her scepticism could well be enough to see her as an acceptable choice to the other candidates, and certainly her reputation as a safe pair of hands appears to have been received fairly well by the markets,” said Michael Hewson, chief market analyst at CMC Markets.

“While the FTSE 100 looks set to finish the month and the quarter higher, and its highest levels this year, this can be largely put down to a weaker pound, as well as the rebound in commodity prices.”

Nominations closed at midday. The contest was sparked by Cameron's resignation after 52% of voters decided to leave the EU last Friday. The new prime minister is expected to take over on 9 September.

Late in the session, Bank of England governor Mark Carney said the central bank is likely to slash interest rates over coming months to cushion the blow from Brexit.

Interest rates have been at 0.5% for more than seven years after being cut during the UK’s downturn and financial crisis. “The committee will make an initial assessment on 14 July, and a full assessment complete with a new forecast will follow in the August Inflation Report. In August we will also discuss further the range of instruments at our disposal,” Carney said in a speech.

The pound plunged 1.25% against the dollar to $1.3262 after Carney's speech.

In economic data, the final release of first-quarter UK gross domestic product from the Office for National Statistics confirmed growth at 0.4%, in line with expectations.

Growth on the year was confirmed at 2%, also in line with expectations.

Dennis de Jong, managing director of UFX.com, said: “Despite Brexit fears looming over the UK economy throughout June, GDP figures for the month look pretty solid. Now that the UK has voted to leave the European Union, however, uncertainty is rife and Q2’s figures will go further in gauging the health of the economy.”

The ONS also released data on the UK’s current account which came in at £32.6bn in the three months to March, down slightly from the upwardly revised £33.96bn in the fourth quarter. Economists had expected a deficit of £28bn.

UK consumer confidence remained in negative territory in June, GfK said, with the index unchanged at -1. Analysts expected a reading of -2. Confidence was hit by concerns that economic growth could be affected following a Brexit vote.

In the eurozone, the consumer price index rose 0.1% year-on-year as energy prices improved, beating estimates of 0% and marking an improvement on the -0.1% fall the previous month. However, it remains well below the European Central Bank’s inflation target of just below 2%.

In the US, initial jobless claims were up by 10,000 to 268,000 last week from the previous week’s downwardly-revised 258,000, the Labor Department said. Economists had expected claims to push up to 267,000.

A measure of Chicago-area economic activity jumped in June. MNI Indicators said the Chicago purchasing managers’ index rose to 56.8 from 49.3, beating expectations for a reading of 51.0. A level above 50 signals expansion while a reading below that suggests a contraction.

On the corporate front, private equity firm 3i jumped after saying it had no plans to dispose of its investment in Dutch discount retailer Action despite a number of approaches.

Heavily-weighted miners also racked up healthy gains as metals prices advanced, with Antofagasta, Anglo American, Randgold Resources and Glencore all sharply higher.

Shire was on the front foot. Although a drug being tested by the company failed to a treat a form of infant blindness as hope, it instead demonstrated positive effects on severe complications related to lung and brain damage.

Banks and housebuilders were under the cosh again amid worries about Brexit. Builders’ merchant Travis Perkins was also in the red after Berenberg downgraded the stock to ‘hold’ from ‘buy’ and slashed the price target to 1,540p from 2,300p pointing to effect of Brexit uncertainty on the housing market.

Market Movers

FTSE 100 (UKX) 6,478.31 1.86%
FTSE 250 (MCX) 16,245.11 1.51%
techMARK (TASX) 3,188.27 1.33%

FTSE 100 - Risers

3i Group (III) 544.50p 7.93%
SSE (SSE) 1,554.00p 5.57%
Informa (INF) 728.50p 5.27%
Antofagasta (ANTO) 465.60p 5.10%
Intu Properties (INTU) 290.10p 5.07%
Schroders (SDR) 2,356.00p 4.53%
Randgold Resources Ltd. (RRS) 8,410.00p 4.28%
RSA Insurance Group (RSA) 496.20p 4.24%
Centrica (CNA) 225.50p 4.21%
Imperial Brands (IMB) 4,068.50p 4.11%

FTSE 100 - Fallers

Royal Bank of Scotland Group (RBS) 171.60p -4.77%
Dixons Carphone (DC.) 320.00p -4.59%
Lloyds Banking Group (LLOY) 54.06p -2.63%
Whitbread (WTB) 3,492.00p -2.10%
Travis Perkins (TPK) 1,468.00p -1.94%
Babcock International Group (BAB) 904.50p -1.42%
Royal Mail (RMG) 501.00p -1.18%
Kingfisher (KGF) 322.20p -1.17%
Sky (SKY) 843.50p -1.11%
Berkeley Group Holdings (The) (BKG) 2,523.00p -1.06%

FTSE 250 - Risers

Softcat (SCT) 332.00p 10.67%
esure Group (ESUR) 286.20p 9.87%
Safestore Holdings (SAFE) 362.40p 8.28%
Amec Foster Wheeler (AMFW) 490.00p 7.62%
Sophos Group (SOPH) 209.90p 6.44%
Wizz Air Holdings (WIZZ) 1,605.00p 6.29%
OneSavings Bank (OSB) 209.10p 5.98%
Ashmore Group (ASHM) 296.00p 5.87%
CLS Holdings (CLI) 1,399.00p 5.58%
Hill & Smith Holdings (HILS) 886.00p 5.54%

FTSE 250 - Fallers

PayPoint (PAY) 903.00p -6.81%
Aldermore Group (ALD) 113.00p -6.61%
Ibstock (IBST) 130.00p -6.27%
Brown (N.) Group (BWNG) 174.60p -3.75%
Pendragon (PDG) 27.82p -3.67%
AO World (AO.) 140.00p -3.45%
Paragon Group Of Companies (PAG) 241.70p -3.32%
Mitchells & Butlers (MAB) 231.60p -3.30%
Zoopla Property Group (WI) (ZPLA) 259.60p -3.06%
William Hill (WMH) 256.20p -2.73%