(Alliance News) - Stock prices in London were mostly lower on Thursday at midday, after the Bank of England kept the UK's key interest rate unchanged and said it does not intend to tighten monetary policy until there is clear evidence of inflation reaching its target.
The central bank's policy makers voted unanimously to keep the Bank Rate at 0.10%. The BoE targets 2.0% inflation, but UK consumer inflation was only 0.7% in January.
The pound was quoted at USD1.3950 on Thursday at midday, up sharply from USD1.3873 at the London equities close Wednesday amid dollar weakness, though down slightly from before the BoE decision.
The FTSE 100 index was down 8.73 points, or 0.1%, at 6,753.94. The mid-cap FTSE 250 index was down 5.05 points at 21,553.25. The AIM All-Share index was 0.1% lower at 1,199.57.
The Cboe UK 100 index was down 0.2% at 673.55. The Cboe 250 was up 0.2% at 19,262.35, and the Cboe Small Companies down 0.2% at 13,922.44.
In mainland Europe, the CAC 40 in Paris was up 0.2%, while the DAX 30 in Frankfurt was trading at all-time highs, up 1.1%. In Frankfurt, Deutsche Bank was up 3.2%, while automakers Daimler and BMW were up 3.1% and 2.3%, respectively.
The Bank of England decision on Thursday was in line with that of the US Federal Reserve on Wednesday. The Fed signalled that US interest rates will remain at near zero through until 2023. The central bank also upped its median projection of US economic growth in 2021.
The policy-setting Federal Open Market Committee left its benchmark rate unchanged in the range of 0% to 0.25%, as widely expected. The US central bank also left its quantitative easing programme unchanged.
A median Fed projection tipped US gross domestic product to grow 6.5% as the country's Covid-19 vaccination programme continues apace.
The Fed's December prediction had been for economic growth of 4.2% in 2021. Forecasts for 2022 have been raised to 3.3% from 3.2%, but the outlook for 2023 has been lowered to 2.2% from 2.4%.
While the outlook has improved due to rapid action by Congress, the US economy is far from a full recovery and the central bank will continue to provide stimulus, Fed Chair Jerome Powell said.
While some board members were edging towards a rate hike by 2023, investors were reassured by projections that borrowing costs will likely stay where they are until possibly 2024, even if inflation surges.
AJ Bell's Russ Mould noted: "In some ways Fed Chair Jay Powell and his colleagues delivered what the market wanted which was a commitment to keep interest rates low. However, it is now a question of the credibility of this argument. Powell has delivered a similar message a few times and yet investors' nagging fear about inflation and the implications for rates have continued to see bond yields surge.
"He seemed to have some impact on US stocks - with the Dow Jones surging to a new record level. The FTSE was also outstripped by European markets ahead of a key decision on the safety of the AstraZeneca vaccine by the EU regulator."
Meanwhile, the UK insisted its plan to ease coronavirus lockdowns in the coming months remained on track, despite news that its vaunted vaccination programme faces a pause in April.
The National Health Service in England has warned in a letter to local vaccination centres that doses will be "significantly constrained" from March 29 for four weeks.
The next phase of the inoculation campaign, covering people in their 40s, will have to be suspended until May, the letter said.
Reports said the problem was linked to a delay in getting five million jabs sourced from India by UK-based drugmaker AstraZeneca, the same company whose supply issues have caused anger in the EU.
"It's a very complex international supply chain and that does mean occasionally we will experience issues and that's what we've experienced right now," cabinet minister Robert Jenrick told Sky News.
The supply issues are another headache for AstraZeneca after its jab was suspended in several EU countries, pending a review by the European Medicines Agency due later Thursday, following isolated cases of blood clots and brain haemorrhages.
The EU meanwhile threatened on Wednesday to invoke emergency powers to block European exports of Covid-19 vaccines to ensure "reciprocity" with other suppliers, urging Britain to send Europe more jabs.
US stock market futures were pointed mostly lower on Thursday. The Dow Jones and S&P indices ended at record-setting levels on Wednesday after the Fed announcement.
The Dow Jones Industrial Average was called up 0.1%, the S&P 500 down 0.5% and the Nasdaq Composite down 1.3%.
The 10-year US Treasury yield stood at 1.74% on Thursday, widening from 1.65% on Wednesday, hitting a new 14-month high, putting pressure on the tech-heavy Nasdaq.
In the FTSE 100, Standard Life Aberdeen was up 2.1%, after Deutsche Bank raised the investment manager to Buy from Hold.
Precious metals miners Fresnillo and Polymetal International were up 2.3% and 1.4% respectively, tracking spot gold prices higher. Gold was trading at USD1,736.88 an ounce Thursday at midday, up from USD1,727.63 late Wednesday, after the dovish tone of the Fed.
NatWest Group was up 1.3% after Goldman Sachs promoted the state-backed lender to its Conviction Buy List.
Aveva Group was up 1.2% after the industrial software provider said it has received the required clearance by the Committee on Foreign Investment in the US ahead of the completion of its acquisition of real-time data management software provider OSIsoft. It said it expects to complete the deal shortly.
At the other end of the large-caps, M&G was the worst performer, down 6.0%, after the stock went ex-dividend, meaning new buyers no longer qualify for the latest payout.
Ocado Group lost early gains and was down 3.8%. Ocado Retail, a joint venture between Ocado Group and Marks & Spencer, said retail revenue grew 40% in the 13 weeks to February 28, reflecting strong demand for online grocery during the latest lockdown.
The average order size was GBP147 in the period, as a result of seasonal strength over the Christmas holiday and "a temporary reversal of the trend towards normalised shopping behaviour in response to further national lockdown measures in the UK".
Marks & Spencer was down 1.1%.
BT Group as 2.7% lower after the UK telecommunications regulator set out conditions for networks to ramp up the rollout of full-fibre broadband for the next five years from April 1.
Ofcom said in its Wholesale Fixed Telecoms Market Review published on Thursday that it plans to put these conditions in place by keeping both entry-level superfast copper broadband service and slower copper broadband packages prices flat in real terms. This is in addition to the progressive removal of the UK copper network after the full-fibre rollout. It said it is not expecting to introduce cost-based prices for fibre for at least 10 years, however.
The regulator said it also will prevent BT's arms-length Openreach unit from harming competition by reviewing all long-term discount agreements it offers its wholesale customers, and restricting anything that could stifle investment by rivals.
In response, BT said Ofcom's market review is "broadly in line" with its internal expectations, and it expects to earn a "fair return" on its GBP12 billion 'Fibre to the Premises' investment.
As a result, the former state telecommunications monopoly confirmed plans to build Fibre to the Premises to 20 million premises by the mid- to late-2020s in order to provide "vital" connectivity for homes and businesses in the UK.
National Grid was 0.7% lower after the UK power lines operator said it will acquire Western Power Distribution from US energy firm PPL Corp for GBP7.8 billion and will offload the UK national gas transmission system under a plan to increase its focus on electricity.
In a separate transaction, National Grid will sell its Rhode Island utility business - Narragansett Electric Co - to PPL for USD3.8 billion. National Grid said it will launch a process later this year to sell a majority stake in National Grid Gas as it looks to boost its electricity assets from around 60% to about 70% of its overall portfolio.
On AIM, Fevertree Drinks was 10% lower. The premium tonic water maker reported a drop in annual profit as lockdown restrictions hurt on-trade sales by forcing the closures of bars and restaurants and delivered disappointing guidance.
For 2020, revenue was GBP252.1 million, down 3% from GBP260.5 million in 2019, and pretax profit was GBP51.6 million, down 29% from GBP72.5 million. It also reported adjusted earnings before interest, tax, depreciation and amortisation margin of 22.6%, down from 29.6%.
Looking ahead, Fevertree reintroduced guidance and anticipates revenue growth of 12% to 16% in 2021 and Ebitda margins consistent with 2020.
Adam Vettese, analyst at eToro, commented: "Fevertree has proved itself nimble and able to adapt quickly to what have been very malignant conditions throughout the pandemic. Pubs and bars accounted for 45% of the premium tonic maker's revenue before the pandemic, so their closure should in theory lead to a devastating effect on sales. Yet total revenue is down just 3%.
"Yes, margins have been squeezed this past year and pretax profit is down nearly 29%, but the drinks maker has shown very impressive ingenuity throughout the Covid crisis and will likely be rewarded for it when the pandemic passes."
The dollar was weaker in the wake of the Fed's rate decision. The euro was priced at USD1.1945, higher from USD1.1900. Against the yen, the dollar was trading at JPY109.00, down from JPY109.29.
Brent oil was quoted at USD68.11 a barrel Thursday, up from USD67.64 at the London market close on Wednesday.
Still ahead in Thursday's economic calendar are the latest US jobless claims data at 1230 GMT.
By Arvind Bhunjun; arvindbhunjun@alliancenews.com
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