London close: Stocks fall as BoE leaves interest rates unchanged

London stocks finished slightly lower on Thursday after the Bank of England surprised the market with its decision to keep interest rates unchanged.

The BoE voted 8-1 to maintain rates at 0.5%, surprising many analysts who had pencilled in a 25 basis point cut in the wake of the Brexit vote. Gertjan Vlieghe was the only dissenting vote against standing pat on rates.

All Monetary Policy Committee members agreed to maintain the quantitative easing programme at £375bn, as expected.

However, the BoE said it expects to boost stimulus measures at the August policy meeting once new economic forecasts are available.

Prior to the Bank’s policy decision, Governor Mark Carney had suggested the BoE would need to enact further monetary easing over the summer given the weaker economic outlook following the 24 June European Union referendum.

“It’s hard not to detect a whiff of disappointment with Mark Carney this afternoon, after the Bank of England opted to hold rates at current levels,” said Chris Beauchamp, senior market analyst at IG.

“Some might want to gripe about a governor that seemed to drop large hints about cutting rates only to vote for the status quo, but in the end the decision to keep its options open was a prudent one from the BoE – better to await developments and more data rather than expend all its energies fighting fires that have yet to materialise.”

The pound was given a boost by the policy announcement, rising 1.49% against the dollar to $1.3343.

The FTSE had initially remained in the black after the BoE's decision but had a last minute drop at the close.

Meanwhile, the appointment of Theresa May as Prime Minister and her cabinet reshuffle provided some much-needed political stability following the EU referendum. Overnight May had sacked George Osborne as Chancellor and replaced him with Phillip Hammond, who further pleased the City by confirming there would be no 'emergency budget' as Osborne has threatened, by while also appointing former London Mayor and leading Brexit campaigner Boris Johnson as Foreign Secretary, with Amber Rudd Home Secretary.

“On the face of it, appointing Boris Johnson as Foreign Secretary is a surprise. However, it could prove to be a sensible move,” said Dominic Bryant, senior European economist and head of UK economics.

“Firstly, Mr Johnson is popular with many of those who voted to leave the EU. Perhaps more importantly, however, during the referendum campaign Mr Johnson was keen to portray his desire to exit the EU as a way of making the UK more global and less Europe-focused.”

Bryant also hailed the appointment of Hammond, saying he is one of the most experience cabinet ministers.

In other macroeconomic news on Thursday, the Royal Institution of Chartered Surveyors indicated that the UK housing market was rather sent reeling by the Brexit vote, with expectations of falling prices and a sharp drop in enquiries about house purchases and a fall in sales agreed.

The RICS survey, conducted after the June 23 vote to leave the EU, characterised it as a “marked drop in activity in the housing market”.

Elsewhere, US initial jobless claims for the week to 9 July were unchanged from the previous week at 254,000, less than the 265,000 expected by analysts.

On the company front, financial stocks gained after the BoE’s policy decision including Barclays, Standard Life, Royal Bank of Scotland, and St James's Place.

London Stock Exchange shares rose on news that Deutsche Boerse had reached the halfway point in signing up investors to support the merger of the two firms.

International Airlines Group (IAG) shares took off after the company said it would add two Airbus 330-300 aircraft to the Aer Lingus fleet next year.

Burberry shares were still out of favour in the wake of the company's announcement on Tuesday of a fall in first quarter sales

Shares in Supergroup, owner of the faux-Japanese fashion brand Superdry, soared as the company announced reported a 21.3% increase in full year revenue to £590.1m.

Software company Micro Focus was also on the front foot it announced its audited preliminary results on Thursday, which were at the high end of management expectations for the year to 30 April, with reported operating profit doubling year-on-year and the final dividend increasing by 50.7%.

Healthcare company BTG shares fell after it said it would make little gains from the collapse of the pound as its currency hedging contracts would negate the potential revenue benefits from the stronger dollar.

Market Movers

FTSE 100 (UKX) 6,662.28 -0.12%
FTSE 250 (MCX) 16,774.79 0.14%
techMARK (TASX) 3,294.40 -0.34%

FTSE 100 - Risers

easyJet (EZJ) 1,169.00p 4.38%
International Consolidated Airlines Group SA (CDI) (IAG) 425.50p 4.26%
Anglo American (AAL) 843.40p 3.84%
St James's Place (STJ) 869.00p 3.82%
Royal Bank of Scotland Group (RBS) 182.60p 2.70%
London Stock Exchange Group (LSE) 2,646.00p 2.32%
Legal & General Group (LGEN) 190.00p 2.26%
Barclays (BARC) 148.20p 2.14%
Standard Life (SL.) 288.00p 2.02%
Schroders (SDR) 2,556.00p 1.95%

FTSE 100 - Fallers

Burberry Group (BRBY) 1,246.00p -2.58%
Marks & Spencer Group (MKS) 330.50p -2.31%
TUI AG Reg Shs (DI) (TUI) 972.50p -2.02%
Relx plc (REL) 1,393.00p -1.97%
WPP (WPP) 1,655.00p -1.72%
Reckitt Benckiser Group (RB.) 7,434.00p -1.54%
Fresnillo (FRES) 1,907.00p -1.50%
National Grid (NG.) 1,087.50p -1.49%
Randgold Resources Ltd. (RRS) 8,920.00p -1.49%
Pearson (PSON) 954.50p -1.39%

FTSE 250 - Risers

Supergroup (SGP) 1,550.00p 15.59%
Micro Focus International (MCRO) 1,850.00p 10.65%
Aberdeen Asset Management (ADN) 311.00p 5.42%
B&M European Value Retail S.A. (DI) (BME) 270.00p 5.39%
Aldermore Group (ALD) 143.10p 5.38%
Hays (HAS) 113.80p 5.37%
CLS Holdings (CLI) 1,366.00p 4.59%
Hochschild Mining (HOC) 239.90p 4.49%
Shawbrook Group (SHAW) 174.80p 3.99%
Redefine International (RDI) 43.71p 3.92%

FTSE 250 - Fallers

BTG (BTG) 646.00p -10.77%
IP Group (IPO) 151.90p -6.98%
Ibstock (IBST) 132.00p -6.58%
Allied Minds (ALM) 342.00p -5.00%
AA (AA.) 240.00p -4.08%
Countryside Properties (CSP) 230.00p -3.97%
Cairn Energy (CNE) 198.20p -3.93%
Rathbone Brothers (RAT) 1,873.00p -3.45%
Marshalls (MSLH) 249.90p -3.33%
Synthomer (SYNT) 342.70p -3.25%