LONDON MARKET CLOSE: Stocks Fall As BoE Cuts UK Growth Forecasts

LONDON (Alliance News) - The Bank of England trimmed its UK growth forecasts and warned a vote for Britain to leave the European Union could lead to recession, leading to stocks closing lower after an early recovery from a soft start in London failed to take hold.

Ahead of the UK's June 23 referendum on its membership of the EU, Bank of England Governor Mark Carney warned the risks of a vote to leave "could possibly include a technical recession".

The Bank of England cut its UK growth outlook for 2016 to 2.0% from the 2.2% estimated in February, and reduced its projection for 2017 to 2.3% from 2.4%.

Vicky Redwood, chief UK economist at Capital Economics, said it was "no great surprise" that the central bank cut its forecast for GDP growth.

Meanwhile, the central bank's Monetary Policy Committee voted unanimously to leave UK interest rates unchanged at 0.5% and the size of its asset purchase programme at GBP375 billion.

At the London equities close, the pound was at USD1.4476, almost unchanged from USD1.4473 the same stage on Wednesday, having risen as high as USD1.4531 during Thursday trade.

Chris Beauchamp, senior market analyst at IG, said, "perhaps the more interesting nuggets are that the bank's forecasts now suggest that there will be just one 25 basis point increase by the second quarter of 2019 and that it may look at cutting rates before engaging in unconventional policy."

"For now sterling has not really taken this into account, but it could become increasingly important in the weeks to come," Beauchamp said.

The euro traded at USD1.139, down from USD1.1438 at the equities close Wednesday.

The FTSE 100 ended down 1.0%, or 58.30 points, at 6,104.19. The FTSE 250 closed down 0.4%, or 60.88 points, at 16,659.87, and the AIM All-Share fell 0.3%, or 1.90 points, to end at 725.07.

In Paris, the CAC 40 index down 0.5%, while the DAX 30 in Frankfurt finished down 1.2%. US shares were lower at the London close, with the Dow Jones Industrial Average down 0.3%, the S&P 500 down 0.3% and the Nasdaq Composite down 0.8%.

"The European markets abandoned their midday perkiness this afternoon, a somewhat controversial Bank of England Super Thursday contributing to the change in tone," Connor Campbell, financial analyst at Spreadex, said.

Brexit campaigners have complained about what they perceive as an intervention by the central bank in the EU referendum. They have called on the Bank of England and Governor Carney to remain neutral on the debate.

Anglo-South African paper and packaging company Mondi stood out in London, rising 0.7%, after reporting that underlying operating profit for the quarter to the end of March was EUR269.0 million, 14% higher than the EUR236.0 million it made a year earlier.

Consumer Packaging, Uncoated Fine Paper and the group's South African arm all made strong contributions in the quarter, Mondi said, offsetting lower selling prices in some Packaging Paper segments and margin pressures on its Fibre Packaging business.

Also among the risers was Marks & Spencer Group, the clothing, homewares and food retailer, which ended up 1.5%. Chief Executive Steve Rowe, who took the helm in April, announced a series of management changes in a bid to drive speedier decision-making and move the business closer to its customers.

ITV, the free to air broadcaster, closed down 2.3%, ending among the heaviest fallers. The company's outlook for advertising was lukewarm due to uncertainty about the UK's upcoming referendum on whether to remain a member of the EU or leave.

Ahead of its annual general meeting Thursday, ITV gave a mixed update for the first quarter of 2016, which showed the company addressing a key concern with viewing figures improving, but giving a softer outlook for its net advertising revenue in the first half of the year.

ITV also came under fire from the official campaign for the UK to quit the EU, Vote Leave, after the broadcaster announced plans for a televised debate on the referendum between Prime Minister David Cameron and UK Independence Party leader Nigel Farage.

Vote Leave accused ITV of "stitching up" a deal with Number 10 to exclude its most prominent spokesmen in favour of Farage, and said it was considering legal action over the matter. Former ITV Chairman Michael Grade responded the "attempt by the referendum Leave campaign to threaten ITV with political repercussions over their TV debate plans is unacceptable, if not shocking."

Grocer J Sainsbury, down 4.0% and British Gas-owner Centrica, down 3.7%, were among the biggest blue-chip fallers after going ex-dividend, meaning new buyers no longer qualify for the latest dividend payment.

Higher gold prices and price target increases by analysts at Goldman Sachs boosted Randgold Resources, up 1.2%. In the FTSE 250, Polymetal, a gold and silver mining company with operations in Russia and Kazakhstan, jumped 12%, feeling the benefit being upgraded to Buy by Goldman.

Gold was quoted at USD1,268.22 an ounce at the London equities close, down from USD1,272.84 the same stage on Wednesday, having risen as high as USD1,280.70. Also in commodities, Brent oil was quoted at USD47.025 a barrel Thursday at the London equities close, down from USD47.065 a barrel on Wednesday.

Also in the FTSE 250, fashion retailer Supergroup, the owner of the Superdry brand, closed up 12%. The stock jumped after Supergroup said revenue for the year to April 23 amounted to GBP589.5 million, up 21% year-on-year from GBP486.6 million, while like-for-like sales grew by 11%, well ahead of the 4.8% like-for-like growth posted for the prior financial year. Like-for-like sales growth in the fourth quarter was even stronger, at 15%.

Freddie George, an analyst at Cantor Fitzgerald, said SuperGroup's results were "significantly better" than he had estimated. "These figures confirm that the company is very much in a growth phase," Cantor's George added.

Aldermore Group, which lends to small businesses, homeowners and landlords, closed up 3.0%, after reporting that loan origination grew 43% year-on-year in the quarter to the end of March to GBP814.0 million from GBP568.0 million.

The UK specialist bank said mortgage loan origination in the first quarter grew 60% year-on-year to GBP542.0 million from GBP338.0 million a year earlier, driven by buy-to-let mortgages more than doubling to GBP327.0 million, as buyers rushed to beat the introduction of a new UK stamp duty levy on buy-to-let borrowers imposed on April 1.

Vedanta Resources, the London-listed Indian commodities company, was the heaviest mid-cap faller, down 9.2%. The company slashed its annual total dividend by more than half to 30 cents per share, a decision labelled "prudent" by Chairman Anil Agarwal, as its pretax loss narrowed to USD4.98 billion in the year ended March 31, from USD5.64 billion a year earlier. Agarwal remained optimistic on the road ahead.

"There is a huge opportunity for Vedanta to support India's future resources demand, which we are well placed to seize with our combination of low cost and well-invested assets. We look to the future with cautious optimism," the Vedanta chairman said.

Friday's economic calendar brings German CPI and GDP data at 0700 BST. French nonfarm payrolls are scheduled for 0845 BST. EU GDP data are due at 1000 BST. In the US, PPI figures are expected at 1330 BST, followed by the Reuters/Michigan Consumer Sentiment Index and business inventories at 1500 BST.

In a relatively light UK corporate calendar on Friday, soft drinks bottler Coca-Cola HBC publishes a trading update, as does windows and doors components supplier Tyman and Irish ferries operator Irish Continental Group.

By Samuel Agini; samagini@alliancenews.com; @samuelagini

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