(Alliance News) - Stocks were lower in London at midday on Thursday, as the Bank of England followed the US Federal Reserve in increasing interest rates by 75 basis points, though the FTSE 100 was rebounding slightly after the decision as the central bank said it expects inflation to ease from early next year.
The FTSE 100 index was down 31.82 points, 0.5%, at 7,112.32. The FTSE 250 was down 169.18 points, 0.9%, at 18,048.57, and the AIM All-Share was down 5.40 points, 0.7%, at 806.62.
The Cboe UK 100 was down 0.8% at 709.02, the Cboe UK 250 was down 1.1% at 15,472.55, and the Cboe Small Companies was down 0.3% at 12,372.79.
The BoE's Monetary Policy Committee voted by 7 to 2 to hike the UK bank rate by 0.75 percentage point to 3.00%. One member voted for a 25-point hike and one for a 50-point one.
In its commentary after the decision, the BoE said it expects UK consumer price inflation to slow early next year after peaking at 11% in the fourth quarter of this year. It noted that peak rate is lower than previously anticipated, due to UK government plans to hold down energy prices.
Sterling was quoted at USD1.1243 after the decision, unchanged from shortly before and lower than USD1.1456 at the London equities close on Wednesday.
The BoE move comes a day after the US Fed raised interest rates aggressively once again.
The Federal Open Market Committee lifted the target range for the federal funds rate to 3.75% to 4.00%, from 3.00% to 3.25% previously. The three-quarter point hike was expected by the market. Wednesday's increase was the US central bank's fourth 75bp interest rate hike in a row.
While this was largely expected, the markets focused on Fed Chair Jerome Powell's subsequent press conference, at which he indicated interest rates are likely to reach higher levels than anticipated.
Powell said "incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected".
"This would seem to suggest that while we can expect to see a 50bps move at the December meeting, the eventual terminal rate could well be much higher than 4.5% and could be as high as 5%," said CMC's Michael Hewson.
Having initially fallen after the rate decision and an apparently dovish accompanying statement, the dollar rebounded on Powell's hawkish outlook.
The euro traded at USD0.9746 at midday on Thursday, lower than USD0.9865 late Wednesday. Against the yen, the dollar was quoted at JPY148.30, up from JPY147.08.
Commodity prices also fell as the dollar strengthened. Gold was quoted at USD1,634.85 an ounce midday Thursday, lower than USD1,646.74 on Wednesday. Brent oil was trading at USD95.68 a barrel, lower than USD96.32.
Meanwhile, survey results showed the UK services sector declined last month.
The S&P Global/CIPS UK services purchasing managers' index fell into contraction territory for the first time in 20 months, with a reading of 48.8 points in October, compared to 50.0 in September. However, this was also better than the estimate of 47.5 previously.
"Household spending cutbacks and shrinking business investment combined to dent new order volumes", according to Tim Moore, economics director at S&P Global Market Intelligence.
The UK composite PMI - which is a weighted average of the services and manufacturing sectors - fell to 48.2 points in October from 49.1 in September. However, the composite reading also was markedly better than the flash estimate of 47.2 points.
On the European continent, unemployment in the single currency area edged lower.
The eurozone seasonally adjusted unemployment rate stood at 6.6% in September, compared to 6.7% in August. The rate in August was adjusted upwards from 6.6% previously.
In European equities on Thursday, the CAC 40 index in Paris was down 0.8%, while the DAX 40 in Frankfurt was down 1.1%.
In London, J Sainsbury was the top performer in the FTSE 100, adding 4.5%.
Pretax profit in the 28 weeks to September 17 fell by 30% to GBP376 million from GBP527 million, the London-based supermarket chain said, blaming high inflation.
Revenue proved resilient however, growing 4.4% year-on-year to GBP16.41 billion from GBP15.72 billion.
"Grocery inflation in the market increased during the period, but we continued to prioritise value for customers, inflating behind all key competitors," Sainsbury's said. The food retailer added that it will have invested more than GBP500 million by March 2023 in keeping prices lower via cost-cutting measures.
"Food price inflation may be continuing to climb but, when it comes to the factors within Sainsbury's control, it seems to be doing a decent job," considered AJ Bell investment director Russ Mould.
"The company's efforts to keep prices as low as possible, while still preserving quality, is paying off in terms of some modest market share gains. Given Sainsbury's positioning you imagine this might be at the expense of higher-end grocers like Waitrose and Marks & Spencer, rather than the discounters."
At the other end of the index was RS Group, down 7.7%. The industrial and electronics distributor said Chief Executive Officer Lindsley Ruth will take a leave of absence due to "personal reasons" with immediate effect.
Chief Financial Officer David Egan will assume Ruth's responsibilities during that time.
More positively, RS reported a strong interim performance, and said it was on track to meet consensus expectations in its full year. Revenue in the six months to September 30 jumped 21% year-on-year to GBP1.46 billion from GBP1.21 billion. Pretax profit rose 34% to GBP182.5 million from GBP136.1 million.
BT fell 7.3%. The telecommunications firm said revenue rose by 0.6% to GBP10.37 billion in the six months to September 30 from GBP10.31 billion a year before. However, pretax profit dropped 18% to GBP831 million, from GBP1.01 billion.
BT upped its cost savings target to GBP3.0 billion from GBP2.5 billion by the end of 2025. It kept its interim dividend unchanged at 2.31p per share.
"BT Group remains on the front foot in these turbulent times...Our financial performance is on track...and we remain laser-focused on modernising and simplifying BT Group," said Chief Executive Philip Jansen.
But investors were wary of its cost-cutting agenda, with AJ Bell's Mould commenting: "The broadband industry is highly competitive, and BT needs to make sure it can provide a reliable service without excessive prices that force customers to defect to rivals. That means it already faces a tough job, which is set to get even more difficult as it is forced to find more places to slash costs. There is a danger it cuts too far, and service suffers."
On AIM, Longboat Energy plunged 37%.
The North Sea-focused energy company announced drilling results at Oswig "at the lower end of pre-drill expectations".
In a preliminary estimate, recoverable resources at Oswig are thought to be between 10 million and 42 million barrels of oil equivalent, based on in-place volume of 100 million to 215 million barrels.
Stocks in New York were called to open lower, with the DJIA down 0.5%, the S&P 500 index down 0.7%, and the Nasdaq Composite down 0.8%.
By Elizabeth Winter; elizabethwinter@alliancenews.com
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