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Friday, 15 July 2016

FTSE retreats from 11-month high after BoE holds rates


Britain's top shares index fell back from an 11-month high on Thursday, after the Bank of England dashed hopes of an interest rate cut, hitting stocks sensitive to sterling strength and housebuilders.

The blue-chip FTSE 100 index was up 0.1 percent at 6,679.27 points by 1149 GMT after briefly turning negative and having hit an 11-month high of 6,743.42 before the Bank of England's decision.

The Bank unexpectedly held its benchmark interest rate steady, with most analysts predicting a cut to a record low of 0.25 percent, which would've been the first cut in more than seven years.

The Bank said it was likely to deliver stimulus in three weeks' time, possibly as a "package of measures" once it has assessed how the June 23 referendum decision to leave the European Union has affected the economy.

"We had a suspicion that they might keep rates on hold. With rates already so low, they only have a limited room for manoeuvre, and I sense that they’re conserving their ammunition in case they need to cut rates further down the line," said Kyri Kangellaris, director at Horizon Stockbroking.

The FTSE 100 was hit by a sharp rise in the pound, with many of its companies earnings revenues abroad and suffering from sterling strength.

The FTSE 250 mid-cap index, whose companies are more exposed to the domestic economy, cut gains to 0.2 percent.

Lower interest rates typically boost stock markets, as they dent returns on bonds and cash and can reduce borrowing costs for companies.

Housebuilding and property stocks, which had been among the hardest hit after the Brexit vote, turned lower, having rallied in anticipation of the decision. Lower rates often encourage consumers to take out loans to buy homes and property.

Berkeley Group was up 0.6 percent, having risen 2 percent before the decision, while Barratt Developments was up 1.5 percent, having been as much as 3 percent higher before the decision.

"A cut is on the way, but not just yet. Clearly, the decision to keep rates on hold is having a bit of an impact on the housebuilding and property stocks that had been rallying earlier this week," said Richard Griffiths, associate director at Berkely Futures, said.

Mining stocks rose on the back of firmer metals prices, with Anglo American up 3.8 percent as JP Morgan upgraded the company to "overweight".

"H1 results are likely to be a positive catalyst for Rio, Anglo and Glencore in our view, and resilient prices have de-risked balance sheets, offering a platform for Anglo and Glencore to execute additional disposals," said JP Morgan's analysts.

The FTSE 100 is up nearly 8 percent so far in 2016, although a slump in sterling following the Brexit vote has meant that the FTSE 100 remains below its pre-Brexit levels in U.S. dollar terms.

Reference: SUDIP KAR-GUPTA

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