FTSE 100 Live: Bank of England rate hike, recession warning

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Analysts react to Bank of England recession forecasts

City analysts have reacted to the Bank of England’s interest rate hike and warnings of a five-quarter-long recession starting in October.

Adam Harris, partner at accounting firm Mazars, says: “A 0.5% rise in base rate would mean an unpleasant shock for many businesses. Even so far we have seen relatively mild increases in interest rates that have prompted some businesses to go bankrupt. Today’s hike will likely trigger more closures.

“With many forecast to reach 3 percent sometime in the next two years, we will see many businesses under financial stress. There are still a large number of ‘zombie’ businesses that have only existed in the past decade. I have survived because of how cheap credit has been. As their returns become unsustainable, more of them will fail.

Shane O’Neill, head of interest rates at Validus Risk Management, said: “Unsurprisingly, the market overcame forecasts for a more than expected 50bps rise and we immediately saw the pound down 0.5% against the dollar and euro. Have seen more falls. After release.

“The dire forecasts from the MPC represent ongoing pain for consumers and will immediately shift the focus to politicians – with Liz Truss the heavy favorite to take the Tory leadership, she feels the position is poisoned.” can do as she takes the wheel. We are entering the worst recession in a decade.

Roger Clarke, CEO of property exchange business IPSX, said: “This is the end of the era of cheap credit. The BoE’s rate hike is unwelcome news for borrowers and investors.

“Higher rates mean higher financing costs for investors and weaker consumer sentiment. Some sub-sectors are more vulnerable than others as a result of the cost of living crisis, particularly retail, due to lower costs of efficiency and capital. Values ​​are likely to decrease.”

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The FTSE 100 takes 0.50% UK interest rates in its growth, the pound slips

The City had expected the Bank of England to double-strength rate hikes and after this was confirmed, London equity markets strengthened.

The FTSE 100 gained a modest 24 points, up 0.3 percent to 7,468.91. The more UK-focused FTSE 250 made a strong gain, rising 128 points to 20147.98, up 0.8%.

The pound was marginally down 0.2% against the dollar on the day at $1.2116.

“We have argued that the bank is probably nearing the end of its austerity period. But even if that is the prevailing view on the committee, we doubt they will say so this week,” Deutsche Bank told ING. In relation to the rate call from said analysis.

“Partly this is simply because everything is so uncertain at the moment. But also because hawks in particular will not want to see the UK-US rate differential widen materially at this stage, given recent Amid fears of increased sterling weakness.

The 0.50% rate hike was the biggest in almost 30 years and more than double the BoE’s usual 0.25% step, but it was also widely expected.

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The Bank of England hiked UK interest rates by 0.50% to 1.75%, with inflation forecast to hit 13%.

The Bank of England raised UK interest rates to 1.75% from 0.50%, as City forecasters had widely expected, as it stepped up its efforts to tame inflation. .

It also raised its forecast for inflation to peak at 13%, a significant revision from the levels seen in its last inflation reports and the 11% level policymakers last saw in the Consumer Price Index ( CPI) was expected to arrive before the return.

“CPI inflation is expected to rise more than forecast in the May report, from 9.4% in June to just 13% in the fourth quarter of 2022, and to remain at very high levels for most of 2023. before falling to the 2% target further,” the BoE said.

There was only one vote on the nine-member Monetary Policy Committee (MPC) against the move, which was double the BoE’s normal hike of 0.25%. One member voted in favor of a 0.25 percent increase.

The BoE said monetary policy was “not on the pre-determined path”, and said the “scale, pace and timing” of further rate changes would come with the MPC “particularly for signs of further sustained inflationary pressures”. Alert” and “will respond forcefully” if necessary.

This is the sixth consecutive increase since December and the biggest rise in borrowing costs in 27 years. This will mean an immediate rise in mortgage bills for millions of homeowners on tracker or variable mortgages that are tied to Bank of England rates.

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Go-Ahead takeover goes ahead after raising offer to £670m.

London bus and commuter train operator Go-Ahead Group has been bought by Australia’s Kinetic Holding and Spanish operator Globalvia Inversiones for £670m after the company agreed to an increased takeover offer.

The Newcastle-based company operates around a quarter of London’s buses and the Govia Thameslink railway comprising the Great Northern, Thameslink, Gatwick Express and Southern networks.

It had originally agreed to be bought by a consortium for £647.7m in June but another Australian transit business, Kelsian, announced it was considering a rival approach, citing “volatile and external events” for the decision. Will not make.

Under the terms of the increased offer, which includes a special dividend of 100 pence, Go-Ahead shareholders will receive 1,550 pence for each share. The previous approach had a special dividend of 50 pence per share.

Michael Sewards, co-CEO of Kinetic, and Javier Pérez Fortia, boss of Globalvia, said: “This transaction will create a leading global, multimodal, mass transit platform. Given our track record and experience, we believe that Go -Will provide long-term capital and expertise to help accelerate Ahead’s strategy and transition to net zero.

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Return of Flying Lift revenue to Rolls-Royce.

Rolls-Royce said today it expects its engines’ flight times to return to pre-pandemic levels in 2024 as revenues continue to recover, but warned of difficulties recruiting engineers in a tight UK labor market. What is it.

The company is paid based on the number of hours customers use its world-renowned engines, so its revenue stream took a hit when air travel was suspended during the Covid-19 travel restrictions. The lines were grounded. Underlying revenue in the first half of the year was £5.3 billion, up 4%, helped by an increase in flight times as air travel returned.

“Engine flight times are expected to maintain current pace and return to pre-pandemic levels in 2024 as global travel restrictions are lifted,” it said, adding that the £188m figure for the period Basic damage is reported. The Derby-based company also said of recruitment: “We have faced some challenges in recruiting, particularly for experienced engineers.”

CEO Warren East, who has announced his departure, said, “We are proactively responding to the impact of a number of challenges, including rising inflation and supply chain disruptions, with a greater focus on pricing, productivity and cost. are being managed.”

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Serco Guidance added shares, while Ocado added 5 percent

Serco’s recent share price gains continued today as Outsourcer posted another profit.

Serco, whose public sector operations include immigration services and London cycle hire, reported a 6 per cent rise in half-year underlying profit to £130m despite a drop in revenue from the termination of contracts linked to Covid. . It also raised its full-year guidance with a big increase in May.

The shares have risen by a third this year and rose another 2.4p to 187.4p today as chief executive Rupert Soames said the order book had grown by another 500 million to £14.6 billion.

Serco’s strong performance came amid another strong session for the FTSE 250 index, which rose 95.53 points to 20,114.37, helped by retail stocks including Marks & Spencer and Pet’s at Home.

Medical products business ConvaTec posted the biggest gainer on the FTSE 250, with its shares up 7% or 16.8p to 247p after the company pleased investors by announcing an unchanged dividend and full-year results. So stick to the guidance.

The FTSE 100 underperformed, partly due to stocks in BT, Lloyds and Unilever trading without the latest dividend right.

The FTSE 100 slipped 19.78 points to 7425.90, with Hikma Pharmaceuticals shedding 9%, or 161.5p, to 1600.5p after it cut full-year guidance due to the impact of “continued challenges” in the US generics market.

Ocado shares continued their recent recovery as the grocery technology business added 6%, or 55.4p, to 967.6p, while Smith & Nephew rose 25p to 1075p following ConvaTec results. Investors also returned to Admiral shares as the car insurer released 49p to 1977p.

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Retail chair M&S shares rose 2 percent, Rolls Royce fell 5 percent

Marks & Spencer and other shares in the retail sector are higher on today’s upbeat trading update from Next.

The latest signs of high street spending resilience helped FTSE 100-listed JD Sports Fashion and B&M European Value Retail improve by 2% while Next rose 152p to 6898p.

The FTSE 100 rose 4.61 points to 7450.29, but there was another blow for Rolls-Royce investors as the shares retreated 5% or 4.35p to 86.44p following the interim results.

In the FTSE 250, M&S rose 2% or 3.25p to 140.55p and Pets at Home added 10.2p to 344.6p. Other second-tier stocks on the front foot included outsourcing firm Serco after its half-year results sent shares up 3% or 5.9p to 190.9p.

The FTSE 250 index was up 113.65 points at 20,132.49.

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Next Shares rally on raised guidance

Next continues to defy tough retail conditions, reporting a 5% increase in second-quarter full-price sales to a £50 million upgrade on previous guidance.

It said lockdown trends have reversed sharply, with store sales and online growth recovering at long-term pace.

The chain said: “Many product trends have also returned to pre-pandemic norms. Lockdown winners such as home and sportswear retreated, while formal wear returned.

Next raised its full-year profit guidance by £10 million to £860 million, up 4.5% on last year.

Shares rose 130p to 6876p ​​today.

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U.S. markets rally, Brent crude at $96

Wall Street posted a strong session last night after a better-than-expected update on corporate earnings and the US services sector quelled recession fears.

Tech stocks led the rally as the Nasdaq gained 2.6%, off a 1.6% advance for the S&P 500 and a 1.3% advance for the Dow Jones Industrial Average.

Meanwhile, Brent crude traded at $96 a barrel today after the cartel agreed to raise output by 100,000 barrels a day in September after the smallest production increase in OPEC history.

The price fell sharply yesterday as traders focused on data showing higher US crude inventories and signs that Americans are driving less than in the summer of 2020.

Attention now turns to the Bank of England, where policymakers could raise interest rates by 0.5% for the first time since the creation of the Monetary Policy Committee in 1997.

The bank has hiked by 0.25% at each meeting since December, but there is little sign that any of those increases have done much to dampen inflation. The consumer price index hit 9.4 percent in June and is poised to go much higher as energy prices rise.

Michael Hewson, chief market analyst at CMC Markets, said: “The Bank is concerned about the impact any rate rise could have on the UK economy, which is undoubtedly slowing down.

“There is no easy option here, however, given that they are already behind the curve.”

CMC expects the FTSE 100 index to open unchanged at 7445.