LONDON (ShareCast) - (Sharecast News) - London's financial markets finished in the red on Thursday, reversing earlier gains after the Bank of England maintained interest rates at current levels.

The FTSE 100 index closed with a slight dip of 0.11%, settling at 7,622.16 points, while the FTSE 250 saw a more substantial decline of 1.17%, ending the day at 19,131.16 points.

In currency markets, sterling was last up 0.29% on the dollar to trade at $1.2725, while it decreased 0.12% against the euro to change hands at €1.1714.

"It's been a weak start to the month for European markets as investors weigh the messaging from both the Federal Reserve and the Bank of England, which appears to be that rate cuts are coming, just not as soon as markets were hoping 24 hours ago, prompting some modest weakness across the board," said CMC Markets chief market analyst Michael Hewson.

"Today saw EU inflation slow by less than expected in January, while the Bank of England was split when it came to today's monetary policy decision.

"What we can glean from today's press conference with Bank of England governor Andrew Bailey is that while the tightening bias has gone, and that a rate cut is coming, the MPC isn't too keen to signal one yet given the elevated levels of services inflation, and that we might have to wait until June."

Hewson said it was a similar story from US Federal Reserve chair Jerome Powell overnight, when he "stomped on the idea" of a March rate cut.

"The FTSE 100 has performed slightly better than its European peers largely due to a solid day for Shell whose shares rose to three-week highs after announcing better than expected fourth-quarter profits."

Central bank decisions, manufacturing data in focus

In economic news, the Bank of England opted to maintain interest rates at 5.25%, with a majority vote of six to three by the Monetary Policy Committee.

While inflation had eased from its peak, it remained above the BoE's 2% target.

Recent data from the Office for National Statistics revealed a surprise uptick in December, reaching 4% from the prior month's 3.9%.

Despite that, many economists still anticipated rate cuts in the coming year, although the Bank of England emphasised the need for "more evidence" before making such adjustments.

"The vote split suggests the MPC won't be rushing to reduce Bank Rate soon, but its new language leaves open the prospect of multiple 25 basis point reductions before the end of this year," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

"The MPC's new forecasts also signal it envisages multiple rate cuts later this year.

"Its mode forecast for CPI inflation in two years' time is 2.3%, if it assumes that Bank Rate falls to 4.22% in the fourth quarter of 2024, as markets expected in the run-up to this meeting."

The decision came after the US Federal Open Market Committee left interest rates unchanged overnight, citing proximity to their goals of full employment and stable inflation.

However, it remained cautious about the sustainability of inflation returning to the 2% target, implying that rate cuts should be postponed until greater confidence is established.

Back on home shores, the UK manufacturing sector faced challenges in January, with the S&P Global UK manufacturing purchasing managers' index (PMI) registering at 47.0, slightly better than December's 46.2 but still in contraction territory.

The decline was attributed to disruptions in the Red Sea, leading to reduced output, new orders, job losses, and supply chain difficulties.

"The downturn in UK manufacturing continued at the start of 2024, with output, new orders and employment all reduced in January," said Rob Dobson, director at S&P Global Market Intelligence.

"The contraction was widespread, with declines in all three variables seen across the consumer, intermediate and investment goods sub-industries.

"Cost and stock management initiatives are being complicated by the Red Sea crisis."

In contrast, the US manufacturing sector exhibited a recovery at the start of the year, as the S&P Global manufacturing PMI there rose to 50.7 in January from 47.9 in December.

The improvement was supported by an increase in new orders and a slower rate of output contraction.

In the euro area, the manufacturing sector showed signs of improvement as the HCOB eurozone manufacturing PMI reached 46.6 in January, up from December's 44.4.

It marked the highest level in ten months, with factory output and new orders declining at softer rates.

Decreases in input costs and output prices were noted, despite disruptions in the Red Sea causing delivery time delays.

Joblessness in the common currency area meanwhile remained relatively stable at the end of 2023, with 10.91 million unemployed residents in December, maintaining an unemployment rate of 6.4%.

Finally on data, China's manufacturing sector maintained stability in January, as reflected in an unchanged Caixin manufacturing PMI at 50.8, aligning with consensus expectations and indicating continued expansion.

Shell jumps on higher dividend, Paragon Banking tumbles

On London's equity markets, Shell jumped 2.41% after the oil giant reported a decrease in annual profits but surprised investors by raising its dividend and announcing a $3.5bn share buyback.

Airtel Africa managed gains of 0.75% after the telecoms group revealed plans for a share buyback worth up to $100m, following a robust performance in the third quarter.

However, the impact of currency movements did weigh on overall growth.

Rightmove also made gains, advancing 1.04% after the property portal announced its acquisition of HomeViews for £8m in cash.

HomeViews is the UK's largest community of verified resident reviews for property developments, with a particular focus on the build-to-rent sector.

On the downside, BT Group reversed earlier gains to close down 2.85% after it reaffirmed its annual guidance and reported flat adjusted earnings for the third quarter, along with increased revenues driven by higher prices.

Phoenix Group also gave up gains, finishing 0.67% weaker after the savings and retirement business achieved its 2025 growth target two years ahead of schedule due to a strong performance in 2023, with new business net fund flows increasing by 80%.

JD Sports Fashion and Paragon Banking also faced setbacks of 1.62% and 7.67%, respectively.

The fall for JD Sports was partially influenced by a weak outlook from Adidas, while Paragon Banking tumbled as it traded without entitlement to the dividend.

3i Group slid 5.16%, despite reporting an 8% increase in net asset value (NAV) for the third quarter as the Europe-focussed non-food discounter Action delivered an "excellent" result.

In broker note action, easyJet ascended 1.38% following an upgrade from 'neutral' to 'overweight' at JPMorgan.

Marshalls gained 5.09% after it received an upgrade to 'buy' from Berenberg, while Pets at Home Group declined 6% after being downgraded to 'hold' by the same firm.

Bytes Technology Group faced a downturn of 6.32% following a downgrade to 'hold' at HSBC.

Similarly, Next experienced a 1.96% decline after Barclays downgraded its shares to 'equal weight' from 'overweight.'

However, Barclays did raise the price target to 8,500p from 8,250p, stating that the valuation was now considered reasonable.

Barclays noted that Next's shares had risen by 26% since the end of October, compared to the FTSE 100's 5% increase during the same period.

Reporting by Josh White for Sharecast.com.

Market Movers

FTSE 100 (UKX) 7,622.16 -0.11%
FTSE 250 (MCX) 19,131.16 -1.17%
techMARK (TASX) 4,361.50 -0.25%

FTSE 100 - Risers

Croda International (CRDA) 4,957.00p 3.37%
Diploma (DPLM) 3,340.00p 2.45%
Shell (SHEL) 2,506.00p 2.41%
Beazley (BEZ) 553.50p 1.65%
Diageo (DGE) 2,905.00p 1.56%
IMI (IMI) 1,711.00p 1.54%
Entain (ENT) 982.60p 1.49%
Rightmove (RMV) 568.00p 1.39%
Glencore (GLEN) 426.10p 1.34%
Haleon (HLN) 325.75p 1.32%

FTSE 100 - Fallers

Ocado Group (OCDO) 516.20p -5.56%
3i Group (III) 2,351.00p -5.16%
BT Group (BT.A) 109.00p -2.85%
Associated British Foods (ABF) 2,279.00p -2.56%
Land Securities Group (LAND) 654.00p -2.33%
Smurfit Kappa Group (CDI) (SKG) 2,880.00p -2.31%
Marks & Spencer Group (MKS) 241.70p -2.26%
Smith (DS) (SMDS) 276.30p -2.23%
M&G (MNG) 219.40p -2.10%
NATWEST GROUP (NWG) 220.50p -2.09%

FTSE 250 - Risers

Marshalls (MSLH) 292.00p 4.06%
Rotork (ROR) 320.40p 2.23%
Cranswick (CWK) 4,112.00p 2.19%
Serco Group (SRP) 176.60p 1.96%
North Atlantic Smaller Companies Inv Trust (NAS) 3,750.00p 1.63%
WH Smith (SMWH) 1,229.00p 1.49%
4Imprint Group (FOUR) 5,550.00p 1.46%
Hochschild Mining (HOC) 105.30p 1.25%
RHI Magnesita N.V. (DI) (RHIM) 3,404.00p 1.19%
Barr (A.G.) (BAG) 574.00p 1.06%

FTSE 250 - Fallers

Paragon Banking Group (PAG) 650.00p -7.67%
Bytes Technology Group (BYIT) 613.50p -6.55%
Pets at Home Group (PETS) 263.40p -6.00%
Trustpilot Group (TRST) 169.40p -5.73%
W.A.G Payment Solutions (WPS) 85.00p -5.13%
Auction Technology Group (ATG) 518.00p -4.95%
Tritax Eurobox (GBP) (EBOX) 49.45p -4.54%
Dr. Martens (DOCS) 85.25p -4.32%
TUI AG Reg Shs (DI) (TUI) 526.00p -4.19%
ICG Enterprise Trust (ICGT) 1,178.00p -3.92%

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