London midday: FTSE touch lower as BoE hikes rates as expected

(Sharecast News) - London stocks were a touch lower just after midday on Thursday as the Bank of England hiked interest rates by 25 basis points, as expected. The FTSE 100 was down 0.1% at 7,735.64, while sterling was 0.2% lower against the dollar at 1.2598. The top-flight index had already pared gains before the announcement.

Interest rates were lifted to 4.5% - the 12th consecutive increase and the highest level since October 2008 - as the Bank looks to tackle inflation, which currently stands at 10.1%.

Giles Coghlan, chief market analyst, consulting for HYCM, said: "Given that annual inflation remains stubbornly above 10%, today's decision to raise the base rate by 25bps again was almost unanimously anticipated by the markets. With wage growth data coming in hotter than expected a few weeks ago, fears of a wage-price spiral have only grown since March and the economy has not cooled to the extent that Bank of England policymakers will have hoped.

"Right now, core inflation remains sticky at 6.2% year-on-year and investors should expect rates to go higher in the summer even if headline inflation falls sharply, particularly as the markets are now expecting a terminal rate of 4.85%. On a brighter note, the BoE are not forecasting a recession for the UK and have revised GDP up for next year to 0.75% from a prior projected fall of -0.25%."

In equity markets, Airtel Africa slumped after full-year results, while engine maker Rolls-Royce lost ground as it held annual guidance and said large engine flying hours had hit 83% of 2019 levels in the four months to April 30.

FirstGroup slid as it lost its TransPennine Express (TPE) contract after the government lost its patience over months of cancellations, with services to be brought under state control.

ITV was under the cosh after the broadcaster reported a drop in first-quarter total advertising revenue (TAR) and said the outlook was "challenging" given the current macroeconomic backdrop.

Vodafone was in the red after announcing a strategic relationship with its largest shareholder, Emirates Telecommunications - also known as e& - which will see the company's chief executive take a seat on the board.

Petershill Partners, Tesco, HSBC and BP all fell as they traded without entitlement to the dividend.

On the upside, Diploma was boosted by an upgrade to 'buy' from 'hold' at Jefferies.