London open: Stocks drop ahead of retail sales, BoE announcement

London stocks fell in early trade as investors digested the overnight rate hike from the Federal Reserve and looked ahead to some key retail sales data and the latest rate announcement from the Bank of England.

At 0830 BST, the FTSE 100 was down 0.6% to 7,428.26, while the pound was up 0.2% against the euro at 1.1385 and down 0.1% versus the dollar at 1.2733.

On Wednesday, the Fed hiked interest rates for the second time this year by 25 basis points to between 1 and 1.25%, as expected, with Chair Janet Yellen reiterating that inflation is expected to return to target and forecasting one more hike this year. However, she added that policymakers will be watching low inflation numbers closely after some disappointing readings.

The Bank of England rate announcement is due at 1200 BST, with market participants largely expecting policy to remain unchanged. As a prelude, retail sales are at 0930 BST.

Spreadex analyst Connor Campbell said: "The pound should be the main focus of trading this morning as investors process the latest retail sales reading, which is set to plunge from 2.3% to -0.9% month-on-month in perhaps another sign of the UK’s pay squeeze, and gear up for the Bank of England rate vote. While Carney and co. are almost certain to keep rates unchanged, it’s the first meeting since the election and subsequence political chaos, so investors will be paying careful attention to the tone of the central bank’s statement."

Investors will also be awaiting Chancellor Philip Hammond's annual Mansion House speech, in which he is expected to argue the case for a softer, more pragmatic Brexit that will protect jobs and economic growth. He will also, according to media reports, outline the Treasury's plans to ensure that infrastructure projects and business start-ups that currently receive support from European Union funds will be able to get UK support instead.

In corporate news, Drax was in the red as it announced a new dividend policy that will see it pay out £50m this year grow from there on, which was maybe less than investors were anticipating, while Sky slipped despite trumpeting a new strategic partnership with Virgin Media on targeted TV advertising.

Engineer WS Atkins ticked down despite reporting a rise in full-year profit and revenue in its last set of results before it gets taken over by Canada's SNC-Lavalin.

PZ Cussons was also a touch weaker after it said its overall performance in the year to the end of May has been in line with expectations.

InterContinental Hotels Group and Shaftesbury were hit by downgrades at Morgan Stanley and Goldman Sachs, respectively, while Next fell after a downgrade from Credit Suisse.

NewRiver REIT slumped as it announced a proposed firm placing and placing and open offer to raise gross proceeds of at least £200m, at between 330p and 340p per share, while self-storage provider Safestore slid after the release of its interim results.

DFS Furniture had the stuffing knocked out of it after the sofa retailer warned that its full-year earnings will be below market expectations due to a weakened trading environment and Wizz Air flew lower after Indigo Partners offloaded its 18.7% stake in the budget carrier.

On the upside, Petrofac gushed higher as analysts at Jefferies lifted the stock to 'buy' and JP Morgan started it at 'overweight'.