The Bank of England has surprised many in the City by leaving the UK’s interest rate unchanged at a record low 0.1%. Many observers were expecting a 15 basis point rise to 0.25% to combat rising inflation.
The Monetary Policy Committee voted 7-2 to leave rates unchanged. It came even as the Bank upgraded its forecast for peak inflation, saying it now expects price rises to hit 5% early next Spring before falling back. The MPC said it expects inflation to return to its 2% target within the next two years.
The interest rate decisions comes on a busy day for corporate news, with results from Sainsbury's, BT and Tate & Lyle and an update from Currys.
FTSE 100 Live Thursday
Federal Reserve sets out taper plan
Oil price resumes rise as OPEC meets
Earnings upgrades lift FTSE 250 index
Purplebricks shares sink
BoE and Federal Reserve rate decisions
07:41 , Graeme Evans
Last night’s Federal Reserve meeting produced few surprises, with the central bank announcing a phased reduction in its $120 billion a month bond buying programme.
An imminent rate rise looks unlikely, however, as Federal Reserve chair Jay Powell and other policymakers continue to see inflation pressures as being transitory.
CMC Markets analyst Michael Hewson said: “Powell was fairly unequivocal in insisting that a rate rise remained some way off, which helped to push US stocks to new record highs, and the US dollar sharply lower.”
The S&P 500 lifted 0.7% and the tech-heavy Nasdaq improved 1% on relief that borrowing costs will stay low for longer. The pound was trading at 1.366 against the US dollar earlier.
In the UK, meanwhile, Bank of England rate setters appear ready to act on their inflation concerns amid expectations they will increase the cost of borrowing for the first time in more than three years later today.
With a rate rise to 0.25% already being factored in for today or December, economists will be looking for clues from the Bank about the potential for further increases over the coming year.
The Bank's projections are expected to show the consumer prices index (CPI) nearing 5%, but the main focus in the City will be on how long CPI will stay above the Bank's 2% target.
A further rise in interest rates to 0.5% is expected in the coming months, but Capital Economics thinks policymakers may wait until 2023 before increasing to 0.75% or above.
Ahead of the meeting, the FTSE 100 index is expected to open 17 points higher at 7266.
OPEC ministers under pressure
08:10 , Graeme Evans
Oil prices fell 3% yesterday but are creeping up again this morning on expectations that OPEC and its allies will resist pressure from US president Joe Biden and stick to their existing plans for a production increase of 400,000 barrels a day.
Brent fell to $81.30 a barrel yesterday after figures showed a bigger-than-expected increase in US crude stockpiles. However, the price has since returned to $82.37 ahead of today’s videoconference meeting of OPEC+, which includes Russia as well as the oil cartel.
The oil superpowers have been blamed by Biden for the sharp rise in petrol and energy costs, although OPEC ministers argue that the spike is more to do with the gas-to-oil switch triggered by the recent tightness in the natural gas market.
Some analysts fear that the price of oil could go above $100 a barrel this winter, having already surged 59% in the year-to-date.
Aston Martin earnings surge
08:45 , Graeme Evans
Aston Martin Lagonda's turnaround appears to be picking up speed, with a little help from 007.
The luxury car maker, which is now under the leadership of F1 motor racing financier Lawrence Stroll, played a leading role in the James Bond film, No Time To Die, after the appearance of four of its models.
The boost to the company’s brand profile from the film and its F1 motor racing team today helped Aston Martin to report a near-doubling in revenues to £237.6 million for the September quarter, having sold 1,349 vehicles in the period.
Earnings in the year to date were in line with expectations after improving £190 million to £72 million. But interest charges resulting from last year's refinancing mean the company still reported a bottom-line loss of £188.6 million for the nine months.
Stroll continues to back the company’s medium-term aim for £2 billion of revenues and £500 million of earnings, aided by the restructuring actions taken since last year.
He added: “Not only do we have low dealer inventory, but it is also healthy and fresh - a testament to our shift to ultra-luxury positioning.”
Shares rose 3% in the FTSE 250 index.
BT leads FTSE 100 higher
08:59 , Graeme Evans
BT shares are at the top of the FTSE 100 risers board after the telecoms group reported half-year results in line with expectations. It also pleased its army of small shareholders by reinstating dividend payments at 2.31p a share.
Having said earlier this week that it had met its £1 billion cost savings target 18 months early, chief executive Philip Jansen said today he intends to bring forward a £2 billion cost savings target from 2025 to 2024.
Shares have been under pressure in recent weeks but rose 4% or 5.5p to 147.65p after Jansen's comments.
The top flight was 21.46 points higher at 7270.35, with medical devices firm Smith & Nephew also up 2% following its latest update.
Sainsbury's shares were among the biggest blue-chip fallers, down 3% or 8.3p to 280.6p despite returning to profitability at the half year stage with a pre-tax surplus of £541 million. The interim dividend was kept at 3.2p a share.
Sainsbury’s sales, profits and market share grows
09:18 , Oscar Williams-Grut
Sainsbury’s sales were up 5.3% to £15.7 billion in the six months to 18 September. Grocery sales rose 0.8% despite tough comparatives last year when lockdowns and restrictions led to booming sales at supermarkets. Sainsbury’s said it was also winning market share.
The supermarket returned to profits in the half-year, posting a pre-tax profit of £541 million. That compared to a loss of £179 million last year and a profit of just £9 million in 2019.
The results are a vindication of the company’s strategy to refocus on food. Sainsbury’s has been launching new products - such as the recent autumn editions range featuring seasonal veg like butternut squash - and investing in driving down the cost of everyday items such as chicken, mince, and vegetables.
BT reinstates divi
09:45 , Oscar Williams-Grut
BT has reported revenue of £10.3 billion for the half-year and profit of £1 billion. Both figures are down a bit on a year ago and in line with City expectations. More importantly a divi of 2.31p, a yield of 5%, has been reinstated.
It came as boss Philip Jansen said BT is powering through the laying of ultra-fast wi-fi cables hitting six million premises in total after a record six months.
That leaves it on track to have a full-fibre network spanning 25 million premises by 2026, something chief executive Philip Jansen insists will be a result for shareholders and for the nation. It is “future proofing” Britain’s internet needs and will be well worth the huge disruption on the roads, he says.
Virgin Media O2 returns to growth
09:55 , Oscar Williams-Grut
Newly merged rival Virgin Media O2 is hard at work building its own network to challenge BT.
The company - created 150 days ago through a merger of fibre and TV business Virgin Media and mobile operator O2 - said today it has spent £1.4 billion investing in network infrastructure so far this year.
Virgin Media O2’s gigabit broadband is now connected to 12.8 million premises and its 5G service is across 210 towns and cities.
Virgin Media O2 is a 50-50 joint venture between US telecom billionaire John Malone’s Liberty Gobal and Spain’s Telefonica. The business said it returned to topline growth in the third quarter with adjusted revenues up 0.7% to £2.6 billion. Adjusted earnings rose 0.6% to £912 million. CEO Lutz Schüler said the business was “firing on all cylinders” and was on a “mission to upgrade the UK.”
Will the Bank of England hike rates?
10:25 , Oscar Williams-Grut
Not long to go now until the Bank of England’s interest rate decision at 12pm.
The market betting on whether it will do so today is split nearly exactly 50:50.
A few weeks back is seemed nailed on that rates would go from 0.1% to 0.25%.
Banks had already pulled their cheapest fixed rate mortgage deals from the market and replaced them with slightly more expensive ones in expectation of such a move.
Inflation was causing jitters and there were increasingly “hawkish” remarks from members of the Bank’s Monetary Policy Committee. (In the jargon, hawks are economists who fret most about inflation, doves think employment or lack thereof is the bigger issue.)
Simon French at Panmure Gordon says Ben Broadbent, one of the deputy governors, will be key. He has “remained rather quiet for several months,” says French, one of the City folk who think the Bank will leave rates unchanged.
Franco Manca to launch in Greece as owner Fulham Shore expands
10:25 , Naomi Ackerman
Fulham Shore shares surged by as much as 8% on the update.
Read the full story here
FTSE 250 surges after earnings upgrades
10:33 , Graeme Evans
Earnings cheer re-ignited the FTSE 250 index today as shares in companies ranging from Tate & Lyle to retail giant Currys and engineer IMI surged by 5% or more.
With the FTSE 100 index largely off the pace, London's second tier index has done its best this year to rival the record-breaking performances seen on Wall Street.
It peaked at an all-time high of 24,250 in early September but has come off the boil in recent weeks as concerns mount about inflationary pressures.
Bosses at several companies today provided a more reassuring tone, however, as the earnings and trading update season picked up speed.
Tate & Lyle led the way after its interim results showed revenues and profits growth of about a fifth from its core operations supplying food and drink ingredients.
Chief executive Nick Hampton said: “Consumer demand for healthier food and drink continues to strengthen across our markets.”
Tate's shares recovered some of their recent weakness by rallying 7% or 46p to 695p.
Electricals chain Currys also pleased investors after growing UK like-for-like sales 11% on two years earlier, meaning it is on track for 2021/22 profits of £161 million. It rose 5% or 6.3p to 128.5p after also promising a £75 million buyback of shares.
Currys was joined on the risers board by precision engineer IMI, which surged 110p to 1740p after increasing its earnings guidance on the back of strong Q3 figures.
The FTSE 250 index climbed 0.8% or 182.60 points to 23,299.57, well ahead of the 19.59 points rise to 7268.48 for the FTSE 100 index.
Others doing well after updates included cyber security firm NCC, venture capital business Draper Esprit and Electrocomponents.
The AIM-listed shares of online estate agent Purplebricks sunk 31%, however, after it admitted that a significant slowdown in new instructions will mean full-year earnings miss previous guidance.
There was also a disappointing start to trading for the electric vehicle charging business Pod Point, with shares down 10p from the initial 225p when it was valued at £325 million.
Wizz Air to offer discount tickets this winter as budget airline pursues growth
10:45 , Naomi Ackerman
It comes after rival Ryanair also announced it would cut prices to stimulate demand over winter.
Read the full story here
US video game maker Devolver Digital’s AIM float receives warm welcome
11:00 , Naomi Ackerman
It listed at 157p per share with an estimated market cap of £694.3 million. By 9am shares were trading at 177.5p under the ticker DEVO.
Read the full story here
Purplebricks shares sink 31%
11:25 , Oscar Williams-Grut
Shares in AIM-listed online estate agent Purplebricks have sunk 31% after it admitted that a significant slowdown in new instructions will mean full-year earnings miss previous guidance.
The company said: “New instructions have slowed significantly in recent months, given continued strong demand across the housing market is not being met by sufficient supply of instructions. This imbalance has resulted in new instructions coming to market being approximately 23% below the comparative period last year.”
Michael Hewson at CMC Markets says: “Could this slowdown be a canary in the coalmine for the housing market? Management warned that trading conditions for H1 had been more challenging with new instructions down 23% from the same period last year. As a consequence, instructions for the six-month period are expected to fall to 22k, down from over 35k a year ago. The company cash position is also lower, at £58m, down from £75.8m a year ago. The company also warned that EBITDA for the year would be lower than previous guidance.”
Virgin Money hints at closures
11:45 , Oscar Williams-Grut
Virgin Money today set out plans for £175 million of cost savings, a move that seems certain to include branch closures and possibly job cuts.
CEO David Duffy presented the move as a further drive into digital banking and insisted the cuts are “not about headcount”.
The bank unveiled 30 branch closures in September taking the total down to 130. It seems likely that this number will get smaller still, though Virgin insists it will keep branches “as long as customers want them”.
VM, created from a merger of CYBG and Virgin, has signed a deal with Microsoft to overhaul its internal IT.
The bank will keep main offices in Newcastle, Glasgow and Leeds, but total office space will be slashed from 900,000 square feet to 300,000 square feet.
A full year trading update shows the bank made £417 million of profit before tax.
The profit margin — the net interest rate — rose from 1.56% to 1.62%.
Shares are down 8.75p to 186.95p.
Bank of England leaves interest rates unchanged
12:13 , Oscar Williams-Grut
That might be a relief to mortgage borrowers on tracker deals, but is a blow to those saying rates need to go up to control inflation.
A rate rise next month or early next year still seems a racing certainty.
Today the nine-strong MPC voted 7-2 to hold rates.
The two in favour of a hike are Michael Saunders , an external MPC member, and Sir Dave Ramsden, the deputy governor for markets and banking.
Pound drops on interest rate decision
12:20 , Oscar Williams-Grut
The pound has sold off sharply against the dollar in the wake of the Bank of England decision.
Sterling is down 1% against the dollar at $1.3547. Many in the City had been expecting a rate rise.
City reacts to no action from the Bank of England
12:35 , Oscar Williams-Grut
Here’s what commentators are saying in the aftermath of the Bank of England’s surprise decision to leave interest rates unchanged:
Alpesh Paleja, CBI Lead Economist: “Today’s Monetary Policy Committee decision was always going to be on a knife-edge. On balance, the decision to keep interest rates unchanged is the right one. The upcoming rise in inflation will likely prove transitory, and there is as yet only patchy evidence of rising prices becoming embedded in both wage-setting and households’ inflation expectations
“The next few months will be something of a balancing act for the MPC. They will need to navigate monetary policy to both curb any signs of price pressures becoming more entrenched, and support the economic recovery from the pandemic. It’s important to remember that any future changes to interest rates will still leave monetary policy very accommodative, with ample scope to support economic growth going forward.”
Ed Monk, associate director at Fidelity International commented: “It seems inevitable that the Bank of England will raise rates at some stage but borrowers have been given a reprieve for now. The MPC appears in wait-and-see mode while supply chain issues and higher global energy prices - factors beyond the control of the Bank - push inflation higher.
“A delay in raising rates is a signal of the conundrum facing rate-setters. They will be uncomfortable that inflation is running so far above target, but also understand they have limited options to bring price rises down. Maintaining rates at their current emergency low level underlines that the Bank still views growth as being fragile.
“Households need to ready themselves for higher borrowing costs arriving at some stage. Taken alongside rising inflation of prices for everyday items like fuel and energy, and with higher National Insurance and frozen Income Tax rates on the way, household budgets are being chipped away from multiple directions. The financial cost of a rise in rates to 0.25%, whenever that does arrive, may be limited but the shift in consumer sentiment it causes may be much bigger.”
Rachel Winter, Associate Investment Director at Killik & Co, said: “Although markets had priced in a 58% chance of a rate rise taking place this month, the Bank of England has chosen to leave rates on hold for the time being.
“This of course will be at the displeasure of many who are becoming increasingly worried about inflation. Despite a small drop in CPI in September from 3% to 2.9%, the inflation rate is still above the Bank of England’s 2% target, and furthermore the Office for Budget Responsibility expects it to remain high in 2022 and 2023.
“Although last week’s Budget promised to “protect the country from rising inflation and interest rates”, the pledge to raise the UK’s National Living Wage by 6.6% could contribute to an upwards inflationary spiral. The rise in wages could potentially force firms to raise prices, resulting in inflation and forcing employees to demand yet higher wages to cover the rising cost of living. An interest rate rise should put the brakes on demand and hopefully prevent inflation from rising further, and the Bank of England will no doubt be watching the situation incredibly closely.
“Although borrowers will be relieved by today’s decision, many people will be concerned about the impact of rising inflation on their finances. The prevailing interest rate is still far lower than the inflation rate, and therefore the value of cash savings will continue to erode over time. Long-term savers should consider long-term investing as an alternative to keeping money in cash or savings accounts.”
Laura O’Sullivan, Banking Strategy and Consulting Lead, Accenture UK and Ireland: “Against a backdrop of rising inflation, the Bank of England’s halt on a much talked about interest rate hike will bring relief to UK households amidst the rising cost of living.
“Concern will nevertheless remain, however, as markets and consumers are aware that rates are highly likely to be raised in the future. With the overall cost of living rising, households need to be prepared.”
Antonio Horta-Osorio overhauls Credit Suisse
13:30 , Oscar Williams-Grut
ANTONIO Horta-Osório today set out to shake up Credit Suisse, the Swiss banking giant buffeted by scandal.
In recent times it has been fined £147 million for a “tuna bond” corruption scandal, been embroiled in the collapses of Archegos and Greensill and seen the CEO Tidjane Thiam ousted in the wake of a corporate espionage saga.
Former Lloyds boss Horta-Osório, right, today said CS will mostly quit the prime brokerage business that left it with $5 billion of losses. It will focus instead on its wealth management arm and streamline the investment banking business.
Chairman Horta-Osório said: “The measures announced today provide the framework for a much stronger, more client-centric bank with leading businesses and regional franchises. Risk management will be at the core of our actions, helping to foster a culture that reinforces the importance of accountability and responsibility.”
The nod to “risk management” will be noted by analysts and regulators, given the bank’s recent repeated failures in that area.
Credit Suisse employs more than 6000 in London at a tower in Canary Wharf.
They will be heartened by strong third quarter results which showed profit of SFr1 billion (£800 million). It did take a SFR560 million hit for potential litigation costs from investors who lost money over Greensill Capital.
The loss of prime brokerage, which mostly serves hedge funds, will probably hit trading revenue in the next few quarters.
A volatile trading pattern in the worst of Covid has boosted all dealing houses. That is expected to calm down now.
Shares are up half a percent in Zurich.
More reaction to the Bank of England’s surprise decision
14:32 , Oscar Williams-Grut
Our senior city correspondent Simon English has some analysis of today’s surprise decisions:
When the Bank of England chose to hold rates at a record low 0.1% there was a certain amount of shock in the Square Mile. Michael Brown at trading house CaxtonFX tweeted: “That’s what was left of the BoE’s credibility shot to bits.”
That seems harsh, but Mr Brown is not alone in so feeling. Has the Bank bottled it, AJ Bell asked?
Markets had priced in a rate rise after hints from Bank of England governor Andrew Bailey and chief economist Huw Pill that they could vote for a hike. Futures bets had unwound a bit in the last few days, but by City reckoning there was still a 58% chance of rates rising. Which either tells you that the Bank got its messaging wrong, or the City just made a hash of it (I’m going with the second option.)
Bank of England ‘strongly negative for the pound'
15:02 , Oscar Williams-Grut
The pound is under pressure in the wake of today’s surprise Bank of England decision to leave rates unchanged.
Deutsche Bank analyst Shreyas Gopal writes: “Today’s dovish hold by the BoE is strongly negative for the currency in the short term. The consequence is that real rates move against GBP, both because the BoE is sticking to their guidance of only modest tightening (fewer rate hikes over the next few quarters), and relatedly because the market will now see the BoE well behind the curve on inflation and price higher breakevens.
“As we have argued, real rates are the key channel through which the central bank affects the currency. A fall in the UK-EU 5y real yield differentials back to levels last seen in May for instance would imply EURGBP closer to 0.87.”
Metro Bank jumps on takeover approach
15:45 , Oscar Williams-Grut
Shares in Metro Bank have surged 30% this afternoon after it revealed it had received a takeover approach from private equity house Carlyle.
Metro said it had “received an approach” and “has engaged with Carlyle in relation to its Possible Offer and a further announcement will be made as and when appropriate. In the meantime, shareholders are advised to take no action.”
Carlyle now has until 2 December to make a firm bid.
Metro Bank has had a troubled few years after an accounting misstatement issue in 2019 that led to the exit of both its CEO and founder. The challenger bank, launched in 2010, is now seeking a turnaround under new boss Dan Frumkin.
FTSE closes higher as Bank of England holds rates
17:55 , Oscar Williams-Grut
The FTSE 100 has closed up 31 points or 0.4% at 7279.
BT topped the index, up 11% as it reinstated its dividend and said cost cutting was ahead of schedule. JD Sports was the second biggest gainer on the index, rising 3.7% despite the competition watchdog’s ruling that it has to unwind its acquisition of Footasylum.
The biggest news in the market was the Bank of England’s surprise decision to leave interest rates unchanged. That sent bank stocks tumbling: NatWest down 5.6%, Lloyds 4.4% lower, and Barclays off 4%. The pound also came under pressure, dropping 1.4% against the dollar to $1.3486 - a one month low.
Elsewhere, Metro Bank closed up 29% at its highest level since February after disclosing a takeover approach from Carlyle.
That’s all from us on the blog today. Join us again tomorrow.