Wednesday 17 October 2018

Mark Carney’s cautious outlook weighs on sterling

The pound slumped during the afternoon despite the rate rise from the Bank of England.

Analysts said Mark Carney’s cautious outlook had weighed on sterling (PA)
Analysts said Mark Carney’s cautious outlook had weighed on sterling (PA)

By Helen Cahill, Press Association City Reporter

The pound slumped during trading on Thursday, despite the Bank of England raising interest rates to the highest level since 2009.

The central bank’s policymakers have unanimously voted to raise the benchmark rate from 0.5% to 0.75%, which sent sterling higher initially.

However, Mark Carney later said future rises would only be limited, and would come at a gradual pace, sending the pound downwards once again.

By late afternoon, the sterling was down 0.7% against the US dollar at 1.303. Against the euro, the currency was 0.3% lower at 1.121.

“Bank of England Governor Mark Carney cautioning the market not to get ahead of itself and highlighting short term factors as a reason not to hike rates further, weighed on demand for the pound,” Fiona Cincotta, senior market analyst at City Index, said.

“His comments ensured that the markets know that a November rate hike is well and truly off the table. In short, this is a one-and-done dovish rate rise, given the Brexit uncertainties that lay ahead in the near term.”

Sterling’s weakness failed to help the flagging FTSE 100, which was knocked by ongoing fears of a trade war between the US and China.

By the close, the FTSE 100 was down by 76.98 points or 1.01% to 7,575.93. The fall pushes the index further below the 7,700 mark broken at the end of last week.

Trade fears also plagued markets on the continent, with the Cac 40 in France falling by 0.66% and the Dax in Germany down by as much as 1.7%.

In oil markets, Brent was inching upwards again following major losses on Wednesday, with Brent crude up 0.2% to 72.740 US dollars a barrel.

Rolls Royce shot to the top of the FTSE 100, with shares climbing 70.2p to 1,058p after it upped its annual earnings outlook and posted better-than-expected results for its half year.

The group reported underlying pre-tax profits of £81 million for the first half of 2018 against losses of £126 million a year earlier.

Barclays saw half-year profits knocked by a third following a major US settlement and mis-selling provisions.

The lender reported a 29% fall in pre-tax profit to £1.7 billion for the six months to June 30, while total income for the period was flat at £10.9 billion. Shares closed 5.16p lower 186.54p.

Insurer Aviva suffered a 2% drop in first-half profits as bad weather, divestments and poor performance from its Canadian motor insurance division weighed on results.

The company said operating profits declined slightly to £1.44 billion over the first six months of the year. Shares fell 7.8p to 487.8p.

Countrywide shares plunged dramatically as the beleaguered estate agent said it was tapping investors for cash to service debts and stay afloat.

The company hopes to raise around £140 million through a share placing and open offer. By the close, shares plunged by 63% or 31.37p to 18.58p.

Alton Towers owner Merlin Entertainments booked a rise in sales on good weather, but was knocked by a fall in profits, knocking shares 14.2p to 376.3p.

All Bar One owner Mitchells & Butlers benefited from a rise in sales but warned its margins will fall due to rising costs, sending shares down 16p to 241.4p.

The biggest risers on the FTSE 100 were Rolls Royce up 70.2p to 1,058p, Sage Group up 21.4p to 646.8p, London Stock Exchange Group up 140p to 4,497p and Just Eat up 12.2p to 787.2p.

The biggest fallers on the FTSE 100 were EasyJet down 59.5p to 1,530p, Rio Tinto down 146p to 3,908p, Anglo American down 52.6p to 1,655.4p and Fresnillo down 31.5p to 993p.

Press Association

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