FTSE and US markets fall as Bank of England halts rate hikes
How major markets are performing on Thursday
Markets in London and across Europe were mixed on Thursday, as the Bank of England followed the US Federal Reserve in leaving its key interest rate on hold.
The FTSE (^FTSE) had lost 0.5% by the end of the day, having declined earlier in the session. The Cac in Paris (^FCHI) moved 1.5% lower and the Dax (^GDAXI) was down 1.2%.
Online grocer Ocado weighed on the FTSE, falling more than 17% by the close in London.
Meanwhile, the FTSE 250 (^FTMC), which tracks more domestically-linked stocks, fell 0.4%.
The decision today ends a spate of Bank of England rate hikes designed at bringing inflation back to its 2% target. The current rate, 5.25% — which is a 15-year high — is the result of 14 consecutive rises.
“We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments," said Chancellor Jeremy Hunt.
“Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”
Meanwhile, the Fed kept interest rates on hold on Wednesday, following signs of easing inflation across the pond. The move came with a warning, though, as comments implied further action may be needed down the line and it could be well into 2024 before rates come down again.
On Thursday, the S&P 500 (^GSPC) was down 0.9% by the middle of the session, the Dow (^DJI) fell 0.5% and the Nasdaq (^IXIC) was down 1.1%.
Read more: Bank of England halts latest interest rate hikes
UK inflation dropped from 6.8% in July down to 6.7% in August, marking the sixth straight decline in the headline rate.
Stay with us for live updates:
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A comment from Andrew Bailey on the hold, which central bank twitchers will be sure to read into:
Inflation has fallen a lot in recent months, and we think it will continue to do so. That’s welcome news. But there is no room for complacency. We need to be sure inflation returns to normal and we will continue to take the decisions necessary to do just that.
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A view from Alice Haine -- personal finance analyst at Best Invest:
The split decision from the Monetary Policy Committee - with five in favour of a rate pause and four favouring a quarter-point hike – proves how tricky the decision was for the BoE following the better-than-expected inflation data on Wednesday.
CPI inflation dropped to 6.7% in the 12 months to August, defying expectations of an uptick in the headline rate on the back of rising oil prices, with a slowdown in food inflation and a drop in the price of hotel rooms the main drivers behind the surprise fall.
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Chancellor Jeremy Hunt's take on the rate hike halt:
Chancellor of the Exchequer, Jeremy Hunt said:
“We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.
“Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.”
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Sterling is testing its lowest levels since March against the dollar, hovering around 0.4% lower in the session to hit around $1.22.
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The rate announcement will be a key signal for the direction of cable. The pound has struggled in recent weeks amid signs of persistent inflation.
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Ocado dive
Ocado is took a hammering on Thursday, registering an 8.5% decline by 10am in London.
The knock came after Exane downgraded the stock to "underperform" citing growth concerns in its retail business. It put the price target at 390p.
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JD Sports sprints ahead despite cost of living squeeze
Sports clothing retailer JD Sports (JD.L) is at the top of the FTSE 100 this morning, up 7.6% after it said it is on track to deliver a bump in full-year profit. Consumers remain "resilient" despite the cost of living crisis, it added.
There was a 12% rise in underlying sales over the first half to the end of July, it said, adding that trading had been boosted by "back to school" shopping in the US.
It expects underlying profits to reach £1.04 billion for the year to February 3, with underlying sales lifting 10% in the first seven weeks of the second half.
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Public sector borrowing balloons
New figures from the ONS show public sector net borrowing was £11.6bn in August. That's more than 40% higher than this time last year.
It's the fourth highest borrowing figure for this month since monthly records began, following August borrowing during the pandemic and the global recession in 2009.
Debt interest payments were below the Office for Budget Responsibility's (OBR) forecast, but remained one of the highest August payments on record.
Meanwhile, the year-to-date public sector net borrowing for the financial year 23/24 was £69.6bn as of August 2023. This was £11.4bn lower than the OBR’s forecast.
Net government debt rose to 98.8% of GDP in August relative to its share of GDP in the previous month. This was more than 2 percentage points higher than in August 2022.
Annual CPI inflation slowed down from 6.8% to 6.7% in August, falling below expectations.
"Whether this is enough to prevent another hike to interest rates will be revealed in the Bank’s decision later today. However, signs that we are nearing the peak provide hope for public finances," said Divya Sridhar, economist at PwC UK.
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Overnight in the US and Asia
Markets across the world finished in the red overnight, following a key interest rate announcement by the Federal Reserve in the US.
The Fed opted to keep rates on hold, a sign the central bank is happier about inflation. The decision left its rate target at 5.25%-5.5%, the highest level in more than 20 years.
The Fed also hinted that it could hike its key lending rate in November. There were no clear indications the Fed would cut rates any time soon.
The S&P 500 (^GSPC) finished the day 0.9% lower, the Dow (^DJI) fell 0.2% and the tech heavy Nasdaq (^IXIC) pulled back 1.5% by the closing bell.
Meanwhile the dollar strengthened against a number of currencies.
Meanwhile in Japan the Nikkei (^N225) was down 1.4%, Hong Kong's Hang Seng (^HSI) retreated 1.3% and the SSE Composite (000001.SS) was 0.7% in the red. The falls in Asia were likely a reaction the the Fed.
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Morning! Lucy Harley-McKeown here, ready for another day of markets and central bank news. It's finally stopped raining in London, so let's get to it.
Watch: By the Numbers: Interest rates and the economy
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