Stocks dip as Bank of England leaves interest rates unchanged
London's FTSE 100 closed lower on Thursday amid ongoing Middle East concerns, after the Bank of England left interest rates unchanged at 4.25%.
The FTSE 100 index closed down 51.67 points, 0.6%, at 8,791.80. The FTSE 250 ended 216.27 points lower, 1.0%, at 21,073.99, and the AIM All-Share fell 5.17 points, 0.7%, at 758.19.
The London Stock Exchange celebrated the 30th anniversary of AIM on Thursday, calling it a 'cornerstone' of the UK's capital markets.
Since its launch in 1995, AIM has become one of the world's most successful growth markets, helping more than 4,000 companies raise over £136 billion.
The decision to hold rates by the Bank's Monetary Policy Committee was widely expected, although the vote split was slightly more dovish than forecast.
The MPC voted 6-3 for the status quo, with Swati Dhingra, Bank deputy governor Dave Ramsden and Alan Taylor preferring a 25 basis point rate cut to 4.00%.
The Bank said there remain 'two-sided' risks to inflation meaning 'a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate'.
The Bank noted that higher food prices could raise 'inflation expectations, impacting wage and price-setting behaviours'.
Bank of England governor Andrew Bailey said interest rates remain on a 'gradual downward path'.
Ebury analyst Matthew Ryan said: 'The BoE still appears to be in no hurry to speed up the pace of policy loosening. Importantly for markets, the phrase that cuts will be both 'gradual and careful' was retained in the statement – there was some speculation that this could be either tweaked or jettisoned.'
ING noted past experience has shown that the vote split contains few useful signals.
'December's meeting saw a similar 6-3 vote, yet heralded little change in the bank's overall stance,' ING said.
It added that rate hawks will have an eye on oil prices.
A 'serious spike in oil prices is the most obvious hawkish risk for the UK rate outlook', ING said.
Nonetheless, ING expects the Bank to cut interest rates in August.
The oil price rose again amid concerns the situation in the Middle East could worsen.
Brent oil traded higher at 78.59 US dollars a barrel late on Thursday from 75.06 dollars on Wednesday as the Israel-Iran conflict continued.
The oil price rise boosted oil majors and FTSE 100 heavyweights BP and Shell, which rose 1.4% and 1.1% respectively, but weighed on British Airways owner IAG, down 3.2% and low-cost airline easyJet, down 3.0%, on concerns of rising fuel costs and travel disruption.
Israel's defence minister Israel Katz said Iran's Supreme Leader Ayatollah Ali Khamenei cannot 'continue to exist', days after reports that Washington vetoed Israeli plans to assassinate him, AFP reported.
'Khamenei openly declares that he wants Israel destroyed – he personally gives the order to fire on hospitals,' Mr Katz told journalists.
'Such a man can no longer be allowed to exist.'
US President Donald Trump wrote on Tuesday that the US knew Mr Khamenei's location but would not kill him 'for now'.
Uncertainty surrounds Mr Trump's next move amid reports that the US is ready to intervene in the conflict.
Bloomberg on Thursday reported senior US officials are preparing for the possibility of a strike on Iran in coming days.
In European equities on Thursday, the Cac 40 in Paris closed down 1.1%, as did the Dax 40 in Frankfurt.
Financial markets in the US were closed to mark Juneteenth National Independence Day.
The pound was quoted down at 1.3429 dollars at the time of the London equities close on Thursday, compared with 1.3472 dollars on Wednesday.
On the FTSE 100, fears the Middle East conflict will lead to higher inflation and slower economic growth weighed on mining stocks.
Anglo American fell 3.3%, Antofagasta declined 3.4% and Rio Tinto dipped 2.5%.
Whitbread fell 1.6% after reporting total group sales fell by 3.8% to £710.9 million in the 13 weeks that ended May 29, the first quarter of its financial year, from £739.2 million a year earlier, or by 1% on a like-for-like basis.
Total UK sales were down 5.4% to £648.2 million from £685.2 million. Accommodation sales fell 1.8% to £485.0 million from £494.1 million, while food and beverage revenue sales dropped 15% to £163.2 million from £191.0 million.
UK revenue per available room fell 2.4% to £62 in the quarter from £63.54 a year ago.
On the FTSE 250, Hays plunged 10% after saying it expects annual profit to be below market consensus, as the staffing firm grapples with challenging market conditions.
AJ Bell's Russ Mould said the share price slump implies the jobs market is going from bad to worse.
'Companies are clearly worried about the economic outlook and they're reluctant to take on full-time staff, potentially not replacing anyone lost to natural turnover. At the same time, individuals are worried that if they move job they'll be in the 'last in, first out' firing line if companies look for new cost savings,' he added.
Hays said permanent recruitment markets have been particularly damaged, amid 'low levels of client and candidate confidence'.
Simon Lechipre, analyst at Jefferies, said the weaker than expected performance is particularly negative for Page Group where permanent recruitment makes up 72% of group fees.
Shares in PageGroup fell 8.8% while Robert Walters dropped 4.8%.
Hays expects annual pre-exceptional operating profit of £45 million, below company-compiled consensus of £56.4 million.
The yield on the US 10-year Treasury was quoted at 4.39%, stretched from 4.36%. The yield on the US 30-year Treasury was quoted at 4.89%, widened from 4.86%.
Gold was quoted lower at 3,368.94 dollars an ounce against 3,387.84 dollars.
The biggest risers on the FTSE 100 were Melrose Industries, up 13.70p at 499.9p, BP, up 5.5p at 392.0p, Bunzl, up 28.0p at 2,250.0p, Shell, up 28.5p at 2,695.5p, and Vodafone, up 0.6p at 75.9p.
The biggest fallers were Persimmon, down 50.0p at 1,317.0p, Antofagasta, down 60.0p at 1,699.0p, Anglo American, down 68.5p at 2,021.5p, IAG, down 10.2p at 309.3p, and Airtel Africa, down 5.4p, at 171.2p.
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