London close: Stocks slide as BoE keeps rates unchanged

UK equities declined as the Bank of England decided to keep its benchmark interest rates unchanged, despite a top Fed official - and well-known hawk - sounding a not completely unexpected dovish note in a speech on Thursday afternoon, and analysts pushing out their forecasts for the first hike in UK interest rates.

The BoE’s Monetary Policy Committee said it would hold interest rates at 0.5% and the asset purchase programme at £375bn, as expected by analysts.

The decision to hold fire on rates comes amid low inflation, weak wage growth, a decline in oil prices, a strong pound and concerns about a slowdown in emerging markets.

Ian McCafferty remained the only policymaker to vote in favour of a rate hike, recommending a 25 basis point rise.

While many analysts are expecting a rate increase in May, several big banks recently pushed their forecasts back to around November.

Berenberg analyst Dominic Bryant said, “the risks to our forecast for May 2016 rate hike are building, as headline inflation may only reach around 0.5% by mid-year.”

“That said, market pricing for the first hike to come in the second quarter of 2017, and then proceed at an exceptionally gradual pace, looks to be a stretch, given limited spare capacity and robust domestic growth.”

Barclays chipped in with a similar view, telling clients : "we acknowledge downside risks to our call, and hence cannot rule out a scenario whereby the BoE does not hike at all by year end."

Consumer price inflation rose 0.1% year-on-year in November, well below the BoE's 2% target.

Elsewhere, Asian stocks were mostly lower with shares in Hong Kong and Japan finishing in negative territory but Shanghai swinging to a positive close.

China’s yuan fell sharply in the offshore market on Thursday by as much as 0.7% to 6.6128 to the dollar despite the People’s Bank of China setting the rate stronger against the dollar. The PBoC fixed the yuan at 6.5616 to one US dollar, slightly stronger from the previous fix of 6.5630 on Wednesday.

Across the Atlantic, jobless claims rose to 284,000 in the week to 9 January from 277,000 the previous week, missing expectations of 275,000, the Labor Department revealed.

US continuing claims for the week ended 2 January rose to 2.263m, the second consecutive weekly increase of 29,000. It follows the previous reading of 2.234m and compares to analysts’ estimate of 2.21m.

The US import price index slid 8.2% in December compared to year ago, following a 9.5% decrease in November. Analysts had predicted an 8.4% fall.

Meanwhile, Federal Reserve official James Bullard said the recent plunge in oil prices had implications for monetary policy in the US. He said the slump in crude had seen expectations for US inflation fall.

"Once oil prices stabilise, headline inflation should return to the Federal Open Market Committee's inflation target of 2%, although it may take longer than previously thought," he said.

At 1630 GMT, Brent crude was rising 1.7% to $30.85 per barrel and West Texas Intermediate 1.9% to $31.10 per barrel.

On the company front, Tesco’s shares jumped after reporting an impressive like-for-like (LFL) sales improvement over the Christmas period. Group LFL sales bounced back with a 2.1% rise in the six weeks to 9 January, with the UK LFLs climbing 1.3% as the prior year's three '£5 off £40' national coupon campaign was abandoned.

Home Retail reversed earlier declines after saying full year profit is expected to come in at the lower end of expectations as Argos sales over the festive period dipped.

Moss Bros edged higher after the formal menswear specialist reported a rise in sales for the 23 weeks from 2 August to 9 January, as its promotional strategy offset a challenging trading environment in autumn.

Asos slid despite saying sales of £446.9m in the four months to 31 December were up 22% on the same period a year before, or 27% higher at constant currency rates.

William Hill gained after reporting full-year adjusted operating profits were in line with expectations.

JD Sports Fashion rallied as it said Christmas sales sprinted ahead by 10.6% and full year headline profit before tax and exceptional items is expected to beat forecasts of £136m by up to 10%.

InterContinental Hotels Group and TUI AG were under pressure after a series of bomb blasts rocked Jakarta. A Canadian and an Indonesian were killed and a number of people wounded by the explosions, which happened at a number of locations including a shopping centre near the presidential palace and UN offices. IHG has nine hotels in the Indonesian capital.

BHP Billiton surged after Citigroup upgraded the company to ‘buy’ and cut the price target to 750p following the steep fall in the share price and despite downgrades to iron ore and gas prices.

Merlin Entertainments took a hit after JP Morgan Cazenove downgraded the company’s rating from ‘neutral’ to ‘underweight’ on valuation grounds.

Oil producers and mining stocks were sitting higher as crude prices recovered and copper prices rose 1.2% on the Comex. Anglo American, Glencore, BP and Royal Dutch Shell were among the risers.

Market Movers
techMARK 3,117.30 -1.60%
FTSE 100 5,918.23 -0.72%
FTSE 250 16,413.27 -1.69%

FTSE 100 - Risers
Anglo American (AAL) 262.95p +13.61%
Glencore (GLEN) 78.62p +9.39%
Tesco (TSCO) 168.00p +6.13%
BHP Billiton (BLT) 657.00p +6.04%
BP (BP.) 347.70p +3.53%
Royal Dutch Shell 'A' (RDSA) 1,391.50p +3.38%
Royal Dutch Shell 'B' (RDSB) 1,390.00p +3.31%
Smiths Group (SMIN) 920.00p +3.08%
Rio Tinto (RIO) 1,735.00p +3.06%
BG Group (BG.) 953.90p +2.94%

FTSE 100 - Fallers
InterContinental Hotels Group (IHG) 2,309.00p -7.19%
Carnival (CCL) 3,649.00p -6.41%
Merlin Entertainments (MERL) 406.70p -5.37%
Inmarsat (ISAT) 1,055.00p -5.04%
Taylor Wimpey (TW.) 189.00p -5.03%
TUI AG Reg Shs (DI) (TUI) 1,194.00p -4.94%
Hikma Pharmaceuticals (HIK) 2,104.00p -4.84%
Ashtead Group (AHT) 997.00p -4.41%
International Consolidated Airlines Group SA (CDI) (IAG) 564.00p -4.33%
Aberdeen Asset Management (ADN) 232.50p -4.32%

FTSE 250 - Risers
B&M European Value Retail S.A. (DI) (BME) 277.50p +8.10%
Vedanta Resources (VED) 241.00p +7.88%
Tullow Oil (TLW) 138.80p +7.68%
Amec Foster Wheeler (AMFW) 399.00p +5.28%
Cairn Energy (CNE) 137.80p +5.03%
JD Sports Fashion (JD.) 1,102.00p +4.16%
Ibstock (IBST) 221.40p +3.70%
Ophir Energy (OPHR) 88.40p +3.69%
William Hill (WMH) 382.00p +3.41%
Euromoney Institutional Investor (ERM) 1,049.00p +3.35%

FTSE 250 - Fallers
Restaurant Group (RTN) 522.00p -18.18%
Thomas Cook Group (TCG) 109.70p -8.20%
WH Smith (SMWH) 1,605.00p -6.20%
Betfair Group (BET) 3,644.00p -5.86%
CLS Holdings (CLI) 1,667.00p -5.77%
Worldwide Healthcare Trust (WWH) 1,770.00p -5.75%
Dignity (DTY) 2,282.00p -5.62%
Rightmove (RMV) 3,939.00p -5.61%
Just Eat (JE.) 447.10p -5.50%
Moneysupermarket.com Group (MONY) 351.20p -5.03%

FTSE TechMARK - Risers
Dialight (DIA) 442.50p +2.25%
Spirent Communications (SPT) 70.00p +1.08%
SDL (SDL) 429.00p +0.94%
Microgen (MCGN) 109.00p +0.93%
Oxford Biomedica (OXB) 7.82p +0.51%
E2V Technologies (E2V) 229.00p +0.44%
XP Power Ltd. (DI) (XPP) 1,506.00p +0.33%

FTSE TechMARK - Fallers
Torotrak (TRK) 3.42p -4.74%
Sarossa (SARS) 1.37p -4.53%
RM (RM.) 169.50p -3.14%
KCOM Group (KCOM) 115.25p -2.95%
Ricardo (RCDO) 851.00p -2.74%
Electronic Data Processing (EDP) 63.75p -1.92%
Triad Group (TRD) 26.75p -1.83%
Consort Medical (CSRT) 1,025.00p -1.82%
Gresham Computing (GHT) 108.50p -1.81%
Oxford Instruments (OXIG) 654.00p -1.51%