London stocks managed a positive finish to trading on Wednesday, after the Bank of England stepped in to stabilise the gilt market.
The FTSE 100 ended the session up 0.3% at 7,005.39, and the FTSE 250 was 0.1% firmer at 17,320.97.
Sterling was in a mixed state, last trading up 0.97% on the dollar at $1.0837, while it was 0.01% weaker against the euro at €1.1186.
“The Bank of England’s u-turn – at least for now – on quantitative easing has given embattled buyers a reason to step back into the market,” said IG chief market analyst Chris Beauchamp.
“While it might not be the big QE programmes of old, it seems the bank’s willingness to intervene is being taken as a good sign, especially compared to its inaction earlier in the week.”
The Bank of England was forced to intervene in bond markets following the recent sell off earlier, saying it would halt the start of its gilt selling next week, and carry out temporary purchases of long-dated government bonds in a bid to restore orderly market conditions.
“The purchases will be carried out on whatever scale is necessary to effect this outcome,” it said in a statement.
“As the Governor said in his statement on Monday, the Bank is monitoring developments in financial markets very closely in light of the significant repricing of UK and global financial assets.”
It said the recent repricing had become more significant in the last day, and was particularly affecting long-dated UK government debt.
“Were dysfunction in this market to continue or worsen, there would be a material risk to UK financial stability.
“This would lead to an unwarranted tightening of financing conditions and a reduction of the flow of credit to the real economy.”
The Bank added that it “stands ready to restore market functioning and reduce any risks from contagion to credit conditions for UK households and businesses”.
It also said that the Monetary Policy Committee would not hesitate to change interest rates by as much as needed to return inflation to its 2% target.
The announcement from the BoE caused an immediate drop in long-dated UK gilt yields, with the 10- and 30-year bond yields falling by around 0.4%.
It came after pressure continued to mount on the government, after the International Monetary Fund urged it to reconsider its planned tax cuts on fears they would stoke inflation.
The IMF – which is tasked with stabilising the global economy and traditionally tends to focus on emerging economies – said it was now “closely monitoring” developments in the UK and was “engaged with authorities”.
It said it believed that the “untargeted” proposals were likely to increase inequality, as well as adding to inflationary pressures, and urged the government to “re-evaluate” its plans.
“Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture,” it warned.
“It is important that fiscal policy does not work at cross purposes to monetary policy.”
In economic news, food inflation surged past 10% to reach a record high, according to fresh industry research.
The latest BRC-NielsenIQ shop price index showed annual food inflation reaching 10.6% in September, up from 9.3% in August, making for the highest rate on record.
Within that, fresh food inflation was 12.1% – up from 10.5% in August – while ambient food inflation rose to 8.6% from 7.8%.
“The war in Ukraine continued to drive up the price of animal feed, fertiliser and vegetable oil, causing fresh food inflation to rise significantly, particularly for products such as margarine,” said Helen Dickinson, chief executive of the British Retail Consortium.
Non-food inflation was 3.3% compared to 2.9% a month earlier, while overall shop price inflation jumped from 5.1% in August to 5.7%, the highest rate since the index began in 2005.
“Retailers are battling huge cost pressure from the weak pound, rising energy bills and global commodity prices, high transport costs, a tight labour market and the cumulative burden of government-imposed costs,” Dickinson continued.
Across the pond, US pending home sales fell in August according to the National Association of Realtors, for the third month in a row.
Pending home sales fell 2% on the month in August, taking the index to 88.4% and surpassing expectations for a decline of 1.4%.
Year-over-year, transactions slumped 24.2%.
“The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” said NAR chief economist Lawrence Yun.
“If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilise.”
On London’s equity markets, luxury fashion brand Burberry Group jumped 5.46% after it said that chief creative officer Riccardo Tisci would be stepping down at the end of the month.
Tisci had decided to leave after almost five years, during which he spearheaded Burberry’s creative transformation, and would be succeeded by Daniel Lee, joining the group on 3 October.
“The rise in Burberry’s share price is perplexing given the news that chief creative officer Riccardo Tisci is leaving, as he was well respected,” said Russ Mould, investment director at AJ Bell.
“Yet in the fickle world of fashion, trends come and go, and so the arrival of someone new may just have excited investors.”
He pointed out that Tisci’s replacement Lee was “credited for helping to breathe some new life into Italian luxury brand Bottega Veneta”.
Elsewhere, Spirax-Sarco gained 2.52% after the manufacturing firm agreed to buy US custom electric thermal solutions specialist Durex International in a deal valued at $342.2m.
Hikma Pharmaceuticals rocketed 12.05% by the close, with a trader noting it has been a “massive underperformer”, adding that the earnings per share trend for the company was upwards, and pointing out that 62% of its revenues came from the US.
On the downside, pub operator JD Wetherspoon slid 4.32% after it put 32 pubs across England on the market on Tuesday.
Wetherspoons, which operates around 800 pubs in total in Britain and Ireland, said it was a “commercial decision” amid the rising cost of staff wages and repairs.
Outside the FTSE 350, fast-fashion retailer Boohoo Group reversed earlier losses to rise 7.95%, even after it cut its outlook for the full year and reported a slide in interim profit, pointing to a challenging consumer backdrop.
The company said it now expected lower sales than previously anticipated, which in turn meant that adjusted EBITDA margins were likely to be between 3% and 5%, down from previous guidance of 4% to 7%.
Boohoo, which previously guided to “low single digits” growth in revenue, highlighted an increase in inflation-driven costs.
Reporting by Josh White at Sharecast.com. Additional reporting by Michele Maatouk and Abigail Townsend.
FTSE 100 (UKX) 7,005.39 0.30%
FTSE 250 (MCX) 17,320.97 0.10%
techMARK (TASX) 4,174.97 0.38%
FTSE 100 – Risers
Land Securities Group (LAND) 519.00p 6.94%
SEGRO (SGRO) 735.60p 5.99%
British Land Company (BLND) 353.60p 5.74%
Burberry Group (BRBY) 1,776.50p 5.46%
Fresnillo (FRES) 748.40p 4.94%
Ashtead Group (AHT) 4,038.00p 3.72%
Endeavour Mining (EDV) 1,649.00p 3.71%
Persimmon (PSN) 1,250.00p 3.48%
Anglo American (AAL) 2,728.50p 3.25%
Unite Group (UTG) 843.50p 3.12%
FTSE 100 – Fallers
Airtel Africa (AAF) 131.80p -6.87%
M&G (MNG) 168.00p -6.20%
Legal & General Group (LGEN) 220.30p -5.61%
Aviva (AV.) 389.00p -4.87%
Phoenix Group Holdings (PHNX) 533.20p -4.58%
Rolls-Royce Holdings (RR.) 66.70p -3.65%
Sainsbury (J) (SBRY) 182.35p -3.57%
Standard Chartered (STAN) 566.20p -3.54%
Ocado Group (OCDO) 522.40p -3.47%
Lloyds Banking Group (LLOY) 41.86p -3.31%
FTSE 250 – Risers
PureTech Health (PRTC) 239.00p 12.21%
Hikma Pharmaceuticals (HIK) 1,390.50p 12.05%
Tritax Big Box Reit (BBOX) 133.70p 6.36%
Derwent London (DLN) 1,987.00p 5.92%
LondonMetric Property (LMP) 171.60p 5.47%
Great Portland Estates (GPE) 431.40p 5.43%
Capital & Counties Properties (CAPC) 105.00p 5.42%
Shaftesbury (SHB) 363.60p 5.39%
Target Healthcare Reit Ltd (THRL) 91.50p 4.93%
LXI Reit (LXI) 122.80p 4.78%
FTSE 250 – Fallers
Molten Ventures (GROW) 294.00p -6.73%
The Global Smaller Companies Trust (GSCT) 123.00p -6.25%
BH Macro Ltd. GBP Shares (BHMG) 4,725.00p -5.72%
OSB Group (OSB) 438.00p -5.64%
Aston Martin Lagonda Global Holdings (AML) 142.25p -5.04%
Virgin Money UK (VMUK) 126.05p -4.98%
National Express Group (NEX) 170.20p -4.49%
Just Group (JUST) 61.70p -4.34%
Bridgepoint Group (Reg S) (BPT) 194.60p -4.33%
Wetherspoon (J.D.) (JDW) 431.20p -4.32%