Portfolio

London midday: Stocks extend losses as BoE forecasts slower recovery

By Michele Maatouk

Date: Thursday 06 Aug 2020

London midday: Stocks extend losses as BoE forecasts slower recovery

(Sharecast News) - London stocks had extended losses by midday on Thursday after the Bank of England stood pat on interest rates and warned the economic recovery would take longer than expected.
The FTSE 100 was down 1.6% at 6,007.51, while sterling was up 0.4% against the dollar at 1.3172 after policymakers voted unanimously to leave interest rates at a record low of 0.1% and the asset purchase programme at £745bn, as anticipated.

The BoE said the economy will not return to its pre-Covid levels until the end of next year. In May, it had said this would happen in the second half of 2021. The economy is now expected to shrink 9.5% this year, compared to a previous forecast for a 14.5% contraction. However, it also revised 2021 growth down to 9% from 15%.

Inflation is expected to fall further below the BoE's 2% target and average at around 0.25% in the latter part of the year .

The BoE indicated that it is willing to keep policy loose even when inflation rises to 2%.

"The Committee does not intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably," it said.

The unemployment rate is set to rise to around 7.5% by the end of the year and decline to 6% next year.

Ruth Gregory, senior UK economist at Capital Economics, said: "Given that the £300bn of asset purchases announced between March and June will not be completed until 'the turn of the year', today's unanimous decision by the MPC to leave policy unchanged was unsurprising and suggests that the MPC thinks that it has done enough for now.

"But we still think that the Bank will eventually expand QE by a further £250bn by the end of 2021."

Investors were also digesting the latest reading on UK construction, which showed that output in the sector expanded in July at its steepest pace since October 2015, but job losses accelerated.

The Markit/CIPS construction purchasing managers' index rose to 58.1 from 55.3 in June, beating expectations for a reading of 57.0. The PMI came in above the 50.0 level that separates contraction from expansion for the second month in a row, with residential building the main driver of growth as activity in the sector rose to the greatest extent since September 2014.

Survey respondents pointed to pent-up demand and reduced anxiety among clients. However, the survey also found that jobs were shed at a faster rate than in June, with around one in three respondents reporting a fall in employment.

There were reports that some clients remained "apprehensive" about committing to new projects, resulting in intense competition to secure sales and squeezed margins.

In equity markets, Glencore lost ground after it scrapped its deferred $2.6bn dividend to bolster its balance sheet as half-year profits fell on weak commodity prices and the Covid-19 pandemic but oil trading posted record profits.

ITV was in the red after the broadcaster said first-half profit was almost wiped out as the Covid-19 crisis caused revenue to plunge and exceptional costs to increase.

Outsourcer Serco fell even as it said interim profits rose 53% on the back of demand from governments for its services during the pandemic and purchase of a US naval systems unit last year.

Defence engineering firm Meggitt was under the cosh as it insisted that its financial position is "strong" and said it was considering its options following a press report that it is looking at an equity offering of up to $600m.

Shopping centre owner Hammerson retreated after announcing plans to raise around £825m through a rights issue and the sale of its 50% interest in Via Outlets to help counter the impact of the pandemic.

On the upside, paper and packaging group Mondi rallied as it restarted paying dividends and reported a 26% decline in first-half profit after the Covid-19 crisis reduced demand for its products.

Insurer Aviva was trading higher after it reinstated its dividend but said it would review its payout policy as half-year profit fell on coronavirus-related and weather claims.

Market Movers

FTSE 100 (UKX) 6,007.51 -1.59%
FTSE 250 (MCX) 17,458.46 -1.02%
techMARK (TASX) 3,790.99 -0.99%

FTSE 100 - Risers

Pearson (PSON) 585.20p 4.31%
Aviva (AV.) 292.30p 2.81%
Mondi (MNDI) 1,453.50p 2.00%
Phoenix Group Holdings (PHNX) 700.20p 1.42%
Legal & General Group (LGEN) 225.00p 0.90%
Ocado Group (OCDO) 2,206.00p 0.50%
Rightmove (RMV) 575.80p 0.21%
Bunzl (BNZL) 2,317.00p 0.17%
Associated British Foods (ABF) 1,858.00p 0.08%
Halma (HLMA) 2,202.00p 0.00%

FTSE 100 - Fallers

Glencore (GLEN) 185.26p -5.58%
Rio Tinto (RIO) 4,714.00p -4.92%
International Consolidated Airlines Group SA (CDI) (IAG) 184.90p -4.59%
Land Securities Group (LAND) 585.20p -4.07%
BAE Systems (BA.) 504.00p -3.96%
BP (BP.) 295.30p -3.70%
British Land Company (BLND) 366.20p -3.68%
Standard Chartered (STAN) 388.90p -3.59%
Taylor Wimpey (TW.) 119.55p -3.35%
Rolls-Royce Holdings (RR.) 250.50p -3.09%

FTSE 250 - Risers

XP Power Ltd. (DI) (XPP) 4,350.00p 5.33%
Frasers Group (FRAS) 273.60p 4.27%
Synthomer (SYNT) 305.60p 3.45%
Ascential (ASCL) 279.20p 2.72%
Airtel Africa (AAF) 57.30p 2.50%
Morgan Sindall Group (MGNS) 1,250.00p 2.29%
Aston Martin Lagonda Global Holdings (AML) 62.15p 1.89%
Softcat (SCT) 1,362.00p 1.64%
Computacenter (CCC) 2,052.00p 1.58%
Gamesys Group (GYS) 1,006.00p 1.51%

FTSE 250 - Fallers

Serco Group (SRP) 149.50p -11.75%
Hammerson (HMSO) 49.70p -11.19%
WH Smith (SMWH) 919.00p -8.05%
Meggitt (MGGT) 272.60p -7.66%
Go-Ahead Group (GOG) 602.50p -5.86%
National Express Group (NEX) 155.70p -5.35%
TUI AG Reg Shs (DI) (TUI) 309.60p -5.32%
IMI (IMI) 1,029.00p -4.90%
Jupiter Fund Management (JUP) 219.80p -4.68%
Cineworld Group (CINE) 36.28p -4.53%

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