London close: Stocks mixed as BoE keeps policy on hold

London stocks closed in a mixed state on Thursday, after the Bank of England stood pat on monetary policy amid fresh fears for the employment market.
The FTSE 100 ended the session down 0.07% at 7,078.35, while the FTSE 250 rose 0.19% to 23,830.18.

Sterling was in the green, meanwhile, last trading 0.91% firmer against the dollar at $1.3746, and gaining 0.54% on the euro to €1.1714.

The Bank of England said it expected inflation to peak at more than 4% in 2021, but left monetary policy unchanged in its decision at lunchtime, as the central bank focused on slowing growth and potential job losses over rising prices.

Its monetary policy committee voted unanimously to leave interest rates at a record low of 0.1% and by a majority of seven to two to continue with its £895bn programme of government bond purchases.

With inflation at 3.2% in August and expected to rise further, the BoE had come under recent pressure to tighten monetary policy by stopping bond purchases early.

It said inflation was likely to exceed 4% in late 2021, but that the MPC believed the rise was transitory.

The central bank had previously predicted inflation would peak at 4%.

“All members in this [majority] group agreed that the outlook for the labour market, and hence underlying inflationary pressures, was particularly uncertain, and that some of this uncertainty should be resolved over coming months,” the Bank of England said.

Samuel Tombs at Pantheon Macroeconomics said that, with the recovery now “sluggish” and businesses facing higher employment taxes next year, he expected the unemployment rate to rise to 5% in the fourth quarter, from 4.5% in the third.

“Just as importantly, [we expect] underemployment to rise sharply, as people return to their former employers but on fewer hours than they would like.

“In our view, the outlook for building labour market slack and a tough fiscal consolidation suggests that the MPC will be able to wait until early 2023 to raise the Bank Rate again.”

Indeed, up to 1.7 million people remained on furlough last month according to official data released during the session, just weeks ahead of the scheme coming to an end.

According to the Office for National Statistics, the proportion of businesses’ workforce reported to be on full or partial furlough stood at 6%, or between 1.3m and 1.7m people, in late August, broadly unchanged from the 1.6m who were on furlough as at the end of July.

Within that, 2% of the workforce – around 300,000 to 800,000 people – was estimated to be fully furloughed.

The largest number of furloughed workers were in the ‘other services’ sector, which includes hairdressing and beauty treatments, with 16% currently using the scheme.

“The furlough figures refused to budge in August, which means up to 1.7m people could still be vulnerable when the scheme vanishes next week,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“It’s a real concern that these figures haven’t shifted.

“There’s always the hope that employers are just waiting for the end of the scheme to bring people back, but it means hundreds of thousands of people are still stuck at home, worrying about the future.”

On the economic front, the UK economy stuttered in September, as cost pressures mounted and demand eased.

The flash reading for September’s IHS Markit/CIPS UK manufacturing purchasing managers index (PMI) was 56.3, down on August’s final reading of 60.3 and a seven-month low.

It also missed consensus expectations of 59.0, while the output index was lower at 51.8 compared to 54.1 a month earlier.

IHS Markit attributed the slowdown to “severe” supply chain disruption and signs that demand was softening.

“The September PMI data will add to worries that the UK economy is heading towards a bout of stagflation, with growth continuing to trend lower while prices surge ever higher,” said Chris Williamson, chief business economist at IHS Markit.

“While there are clear signs that demand is cooling since peaking in the second quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labour, most notably in the manufacturing sector but also in some services firms.

“Shortages are driving up prices at unprecedented rates as firms pass on higher supply charges and increases in staff pay.”

Finally, on the gas prices front, it was reported that the government was talking to regulator Ofgem about possible changes to the energy price cap.

Paul Scully, the small business minister, told Sky News that the government has had “lots of conversations … with companies themselves, with Ofgem, in reviewing the price cap”.

“We clearly want to protect customers,” he said.

Gas and electricity bills may not exceed the price cap, which is reviewed twice a year and set by the regulator.

In August, Ofgem announced it would go up by 12% to £1,277 for a household using an average amount of energy, with the changes coming into effect from October.

In equity markets, Investec rallied 3.25% as the wealth manager and banking group raised its earnings outlook driven by strong revenue growth and lower impairments.

Engine maker Rolls-Royce added 3.9% by the close, after Berenberg upped its price target on the shares to 160p from 150p.

The bank, which rated the stock at ‘buy’, said the decision by the United States government to open its borders to vaccinated individuals was a positive step towards a more robust recovery in long-haul travel, which had lagged domestic travel markets.

Imperial Leather maker PZ Cussons reversed earlier losses to close up 2.95%, after it said on Wednesday that full-year profits rose as sales of hygiene products soared, but that first-quarter sales had fallen against tough comparators during the height of the Covid-19 pandemic.

On the downside, Harbour Energy slumped 6.42% after its first-half revenues missed market expectations.

Royal Mail was off 0.54% after saying it expected group first-half adjusted operating profit to be between £395m and £400m, as it reported an 8.2% rise in revenue for the five months to August.

Ladbrokes owner Entain was 4.84% weaker following strong gains in the last couple of days on the back of a takeover offer from US-based DraftKings.

Market Movers

FTSE 100 (UKX) 7,078.35 -0.07%
FTSE 250 (MCX) 23,830.18 0.19%
techMARK (TASX) 4,745.82 -0.19%

FTSE 100 – Risers

Rolls-Royce Holdings (RR.) 126.94p 3.90%
Lloyds Banking Group (LLOY) 44.96p 2.22%
Glencore (GLEN) 330.15p 1.84%
Scottish Mortgage Inv Trust (SMT) 1,449.00p 1.65%
Antofagasta (ANTO) 1,443.00p 1.58%
NATWEST GROUP PLC ORD 100P (NWG) 216.90p 1.54%
Anglo American (AAL) 2,600.00p 1.48%
Barclays (BARC) 183.80p 1.42%
Halma (HLMA) 3,152.00p 1.35%
Burberry Group (BRBY) 1,847.50p 1.23%

FTSE 100 – Fallers

Entain (ENT) 2,262.00p -4.84%
Polymetal International (POLY) 1,302.00p -3.27%
Prudential (PRU) 1,390.00p -2.18%
Intertek Group (ITRK) 5,308.00p -2.17%
Pearson (PSON) 709.60p -1.91%
Flutter Entertainment (CDI) (FLTR) 15,605.00p -1.79%
Hargreaves Lansdown (HL.) 1,414.50p -1.74%
BT Group (BT.A) 157.80p -1.56%
Persimmon (PSN) 2,757.00p -1.54%
Experian (EXPN) 3,338.00p -1.48%

FTSE 250 – Risers

Darktrace (DARK) 986.50p 7.64%
Telecom Plus (TEP) 1,166.00p 6.00%
Hilton Food Group (HFG) 1,180.00p 5.36%
Chemring Group (CHG) 320.50p 3.89%
PZ Cussons (PZC) 228.50p 3.86%
Investec (INVP) 302.30p 3.42%
Oxford Instruments (OXIG) 2,430.00p 3.18%
Carnival (CCL) 1,644.60p 3.10%
Just Group (JUST) 94.55p 2.77%
AO World (AO.) 237.20p 2.68%

FTSE 250 – Fallers

Harbour Energy (HBR) 358.40p -6.47%
888 Holdings (888) 459.60p -3.85%
Trustpilot Group (TRST) 345.80p -3.84%
TI Fluid Systems (TIFS) 258.50p -3.36%
Homeserve (HSV) 953.00p -3.20%
Syncona Limited NPV (SYNC) 179.20p -2.61%
Moneysupermarket.com Group (MONY) 215.00p -2.54%
Moonpig Group (MOON) 364.60p -2.51%
IG Group Holdings (IGG) 834.00p -2.40%
BH Macro Ltd. GBP Shares (BHMG) 3,550.00p -2.20%

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