London close: Stocks maintain gains after BoE confirms big rate hike
London stocks managed a positive finish on Thursday, after the Bank of England announced its biggest rate hike in 27 years in a bid to tackle surging inflation.
The FTSE 100 ended the session up 0.03% at 7,448.06, and the FTSE 250 was ahead 0.68% at 20,155.76.
Sterling was in the red against its major trading pairs, last slipping 0.05% on the dollar to change hands at $1.2143, and weakening 0.58% against the euro to €1.1879.
“UK stocks have enjoyed a decent bounce off the lows, but Andrew Bailey and company are clearly worried about the economy, and now expect a recession and two years of negative income growth,” said IG chief market analyst Chris Beauchamp.
“The pound’s slump in the wake of today’s MPC decision underlines the caution investors have regarding the UK economy, and suggests that the pound’s miserable performance thus far in 2022 is unlikely to change for the time being.”
The Bank of England announced its biggest rate hike since 1995 at lunchtime, in the face of surging inflation as it warned of a long recession.
It lifted rates by 50 basis points to 1.75%, marking the sixth increase in a row, and in line with economists’ expectations.
The Monetary Policy Committee voted 8-1 for the rate rise, with only Silvana Tenreyro opting for a smaller rise to 1.5%.
It also warned the UK economy would enter recession in the October-to-December quarter.
“The latest rise in gas prices has led to another significant deterioration in the outlook for activity in the United Kingdom and the rest of Europe,” the Bank said.
“The United Kingdom is now projected to enter recession from the fourth quarter of this year.
“Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.”
The BoE said it now expected inflation to rocket to above 13% by the end of the year, noting that inflationary pressures in the UK and the rest of Europe had seriously intensified since the May monetary policy report and the committee’s previous meeting.
“That largely reflects a near doubling in wholesale gas prices since May, owing to Russia’s restriction of gas supplies to Europe and the risk of further curbs.”
In economic news, activity in the UK construction sector contracted in July, falling at its sharpest pace in more than two years.
The S&P Global/CIPS construction purchasing managers’ index declined to 48.9 from 52.6 in June, coming in below the 50 mark that separates contraction from expansion for the first time since January 2021.
It was the fastest rate of decline since May 2020.
“After several months of difficult conditions for builders, these challenges have now resulted in a contraction in construction with the biggest fall in activity since May 2020,” said Duncan Brock, group director at the Chartered Institute of Procurement and Supply.
“This disappointing result was felt across all the sectors, including housing which had demonstrated more resilience over the last couple of years, but fell for the second month in a row in July.
“However, it was civil engineering that fell the hardest and furthest.”
Elsewhere, UK new car registrations fell further in July amid ongoing supply issues, with the Society of Motor Manufacturers and Traders reporting 9% fewer registrations year-on-year, to 112,162 units.
The result marked the fifth consecutive month of declines, although it was the smallest fall recorded so far this year.
Ongoing global supply chain issues, primarily the lack of semiconductors, continued to frustrate order fulfilment, exacerbated by Covid lockdowns in key manufacturing and logistics centres in China, as well as disruption from Russia’s ongoing invasion of Ukraine, the industry body said.
“The automotive sector has had another tough month and is drawing on its fundamental resilience during a third consecutive challenging year as the squeeze on supply bedevils deliveries,” said SMMT chief executive Mike Hawes.
“While order books are strong, we need a healthy market to ensure the sector delivers the carbon savings government ambitions demand.
“The next prime minister must create the conditions for economic growth, restore consumer confidence and support the transition to zero emission mobility.”
On the continent, factory orders in Germany fell less than expected in June, according to figures released earlier by Destatis.
Orders declined by 0.4% following a revised 0.2% dip in May, and versus expectations for a 0.8% drop.
On the year, factory orders were down 9% in June following a revised 3.2% fall a month earlier - analysts had expected a 6% decline.
Destatis said the drop in in new orders was mostly due to a 4.3% decline in orders from the non-euro area compared with the previous month.
“Although new orders declined and turnover increased markedly, the volume of new orders was slightly higher than the volume of turnover in June,” Destatis noted.
“The excess demand is likely to be due to the continuing acute shortage of intermediate products.
“Enterprises still have difficulties completing their orders as supply chains are interrupted because of the war in Ukraine and distortions persist that have been caused by the Covid-19 crisis.”
Across the pond, America's shortfall on trade with the rest of the world in goods and services shrank more than expected in June, amid a sharp jump in exports.
According to the Department of Commerce, the foreign trade deficit fell a seasonally-adjusted 6.2% on the month, to reach -$79.6bn.
Economists had pencilled in a deficit of -$81.5bn.
On London’s equity markets, commodity trading and mining company Glencore rallied 3.07% by the close, after it posted a massive $10.3bn rise in interim core profits on the back of record prices for coal and gas, and said it would return $4.5bn to shareholders.
ConvaTec racked up gains of 6.78% after the maker of medical products said it was on track to deliver full-year guidance despite a drop in first-half operating profit.
Gold miner Centamin was 7.3% firmer after its first-half results met analysts’ expectations, while Phoenix Group rose 1.62% after saying it was buying closed book UK life insurance company Sun Life for £248m.
On the downside, Next reversed earlier gains to lose 0.47% by the close, even after the high street stalwart lifted its full-year profit guidance by £10m to £860m.
Rolls-Royce slid 8.97% after the engine maker reported a decline in first-half underlying but backed its full-year guidance amid expectations of an improvement in the civil aerospace division.
Hikma Pharmaceuticals was 6.33% weaker after it cut its revenue guidance for its generics business to between $650m and $675m, from between $710m and $750m.
Mondi was also down, losing 5.03% even after the paper and packaging group reported a sharp rise in interim profits on the back of higher prices due to reduced timber supplies.
Building contractor Morgan Sindall fell 1.72% after saying it expected its full-year result to be slightly ahead of expectations following a rise in half-year profits, but warned that higher costs, inflation and delayed projects were presenting a more challenging market.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk, Frank Prenesti and Alexander Bueso.
Market Movers
FTSE 100 (UKX) 7,448.06 0.03%
FTSE 250 (MCX) 20,155.76 0.68%
techMARK (TASX) 4,368.07 0.59%
FTSE 100 - Risers
Entain (ENT) 1,303.00p 4.95%
Flutter Entertainment (CDI) (FLTR) 8,694.00p 4.02%
Anglo American (AAL) 2,866.00p 3.17%
Dechra Pharmaceuticals (DPH) 3,784.00p 3.11%
Glencore (GLEN) 459.75p 3.07%
Ocado Group (OCDO) 940.00p 3.05%
RS Group (RS1) 1,058.00p 3.02%
CRH (CDI) (CRH) 3,212.00p 2.93%
Smith & Nephew (SN.) 1,080.50p 2.90%
Whitbread (WTB) 2,645.00p 2.76%
FTSE 100 - Fallers
Rolls-Royce Holdings (RR.) 82.65p -8.97%
Hikma Pharmaceuticals (HIK) 1,650.50p -6.33%
Mondi (MNDI) 1,529.00p -5.03%
Airtel Africa (AAF) 149.10p -3.31%
BT Group (BT.A) 156.20p -3.28%
Land Securities Group (LAND) 711.80p -1.85%
British American Tobacco (BATS) 3,219.50p -1.84%
Shell (SHEL) 2,132.50p -1.75%
Reckitt Benckiser Group (RKT) 6,696.00p -1.65%
Lloyds Banking Group (LLOY) 45.10p -1.59%
FTSE 250 - Risers
TP Icap Group (TCAP) 129.20p 7.76%
Centamin (DI) (CEY) 90.50p 7.30%
Convatec Group (CTEC) 245.80p 6.78%
888 Holdings (DI) (888) 159.30p 6.77%
TUI AG Reg Shs (DI) (TUI) 144.70p 6.24%
Ascential (ASCL) 246.60p 5.75%
Softcat (SCT) 1,436.00p 4.74%
Kainos Group (KNOS) 1,461.00p 4.36%
Volution Group (FAN) 402.50p 3.60%
IWG (IWG) 197.00p 3.58%
FTSE 250 - Fallers
Abrdn Private Equity Opportunities Trust (APEO) 433.00p -6.48%
Babcock International Group (BAB) 338.80p -4.19%
Chrysalis Investments Limited NPV (CHRY) 93.30p -3.62%
Balanced Commercial Property Trust Limited (BCPT) 113.80p -3.40%
XP Power Ltd. (DI) (XPP) 2,160.00p -2.92%
BH Macro Ltd. GBP Shares (BHMG) 4,340.00p -2.69%
Currys (CURY) 64.85p -2.48%
Savills (SVS) 1,126.00p -2.43%
Coats Group (COA) 70.00p -2.37%
Synthomer (SYNT) 188.10p -2.34%