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(Alliance News) - Stock prices in London closed lower on Thursday, as the Bank of England kept its interest rates on hold, in line with Japan but at odds with the ECB and the Fed.
UK Prime Minister Keir Starmer pleaded for patience over his drive to improve living standards, warning it "will take some time" for people to feel the benefits.
Starmer hopes changes to planning rules, reforms to regulations and the use of technology and artificial intelligence could help boost sluggish economic growth.
But he told senior MPs on the Commons Liaison Committee that he would not repeat the mistakes of the Tory years and promise quick solutions.
Starmer said: "We've had a decade – slightly more – of stagnant growth or low growth and we've got to turn that around."
The budget was intended to "stabilise the economy" and create the conditions for investment, he said.
"We've obviously got to carry out reforms – to planning in particular, to regulation in particular – to drive the growth that we need."
The prime minister's appearance came on the day the Bank of England held interest rates at 4.75% and warned of "heightened uncertainty in the economy" following the UK Budget and US presidential election.
Interest rate calls on either side of the Atlantic dominated events with the Bank of England leaving rates unchanged, after a 'hawkish' cut by the US Federal Reserve on Wednesday.
The BoE's Monetary Policy Committee voted 6 to 3 for the status quo, opting not to follow the European Central Bank and US Federal Reserve in easing monetary policy.
The vote was more divided than expected with three MPC members, Swati Dhingra, Dave Ramsden and Alan Taylor, arguing for a further quarter point cut.
The BoE pointed to "progress in disinflation, particularly as previous external shocks have abated, although remaining domestic inflationary pressures are resolving more slowly."
"A gradual approach to removing monetary policy restraint remains appropriate," the BoE said.
"Monetary policy will need to continue to remain restrictive for sufficiently long until the risks to inflation returning sustainably to the 2% target in the medium term have dissipated further."
Berenberg senior economist Andrew Wishart commented: "Although a majority of six Monetary Policy Committee members voted to keep the Bank of England's bank rate on hold at 4.75% at their December meeting, the three who dissented by voting for a cut provided an unexpected dovish twist.
"Until now the MPC's focus has been squarely on inflationary pressure, which has surprised to the upside since the last meeting. The dissenters instead put most weight on sluggish demand and a weakening labour market, arguing that high interest rates could cause an 'unduly large output gap' to open up which puts too much downward pressure on inflation.
"A more dovish approach feels risky to us. Any positive impulse to demand would allow firms to pass on more of the large increase in labour costs they face to customers by raising prices, keeping inflation higher for longer. In our view, the BoE will only be able to cut twice next year before above-target inflation forces it to reassess."
The FTSE 100 index closed down 93.79 points, 1.1%, at 8,105.32. The FTSE 250 ended down 202.61 points, 1.0%, at 20,399.38, and the AIM All-Share closed down 1.1%, or 7.64 points, at 711.78.
The Cboe UK 100 ended down 1.2% at 812.46, the Cboe UK 250 closed down 1.1% at 17,910.84, and the Cboe Small Companies ended down 0.7% at 15,850.09.
In European equities on Thursday, the CAC 40 in Paris ended up 0.1%, while the DAX 40 in Frankfurt ended down 1.2%
The pound was quoted at USD1.2546 at the London equities close Thursday, down compared to USD1.2692 at the close on Wednesday.
The US was staring down the barrel of a holiday-period government shutdown Thursday as a late-hour intervention by Donald Trump and Elon Musk threatened efforts in Congress to keep the lights on through the New Year.
The money authorized by lawmakers to run federal agencies is set to expire Friday night, and party leaders had agreed on a stopgap bill – known as a "continuing resolution", or CR, – to keep operations functioning.
Debt hawks in the House of Representatives balked at what they considered an overstuffed package full of "pork" – spending that has nothing to do with the point of the bill – but it still looked like it might pass a floor vote.
Then Musk, the world's richest man and President-elect Trump's incoming "efficiency czar," bombarded his 208 million followers on X with posts trashing the text, many of them making false or misleading claims.
The euro stood at USD1.0384 at the European equities close Thursday, lower against USD1.0498 at the same time on Wednesday.
Against the yen, the dollar was trading at JPY157.77, higher compared to JPY153.57 late Wednesday.
Stocks in New York were higher at the London equities close, with the DJIA up 0.5%, the S&P 500 index up 0.6%, and the Nasdaq Composite up 0.8%.
In the FTSE 100 which is more exposed to the US, Pershing Square fell 3.8%, followed by Mondi, down 3.7%, and Ashtead Group and Marks & Spencer, both down 3.4%.
Meanwhile, water firms Severn Trent and United Utilities closed higher, up 1.4% and 1.2% respectively, while in the FTSE 250, Pennon climbed 0.4%
The gains followed news UK water regulator Ofwat will allow utilities in England and Wales to raise customer bills by an average of 36% by 2030, a larger increase than it earlier indicated.
Water companies are required to reach settlements with the regulator every five years covering bill increases, the amount they can invest and the returns their investors can make.
Serco advanced 8.4% after stating the outlook for 2025 is "positive", after an improved second half performance in 2024 led it to issue improved free cash flow and debt guidance.
For 2024, the Hampshire-based outsourcer expects revenue of GBP4.8 billion, in line with guidance, down 1.4% from GBP4.87 billion in 2023. It would represent an organic revenue decline of around 3%, Serco said.
The company noted an improving trend through the year with a second half organic revenue decline of 1% compared to the 5% drop seen in the first six months of 2024. This improvement was led by North America, Serco noted.
Free cash flow guidance was increased to GBP170 million from GBP150 million, while Serco now expects adjusted net debt to be GBP145 million, GBP20 million better than prior guidance.
Serco flagged a "much improved" order intake in the second half resulting in an expected book-to-bill for the full year of around 100%.
Costain perked up 0.9% after its joint venture with Siemens Mobility won an up to GBP300 million contract for HS2. A separate 7-year maintenance contract could be worth an extra GBP32 million, the firm said.
Brent oil was quoted at USD72.80 a barrel at the London equities close Thursday, down from USD74.01 late Wednesday.
Gold was quoted at USD2,591.10 an ounce at the London equities close Thursday, lower against USD2,637.13 at the close on Wednesday.
In the UK's corporate calendar, Carnival is set to release full year results at 1500 GMT.
The economic calendar for Friday has an interest rate decision in China at 0115 GMT, followed by UK retail sales and German producer price inflation data at 0700 GMT.
By Tom Budszus, Alliance News slot editor
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