The U.K. pound dropped to a six-month low and shares of London-listed housebuilders jumped after the Bank of England left interest rates unchanged at 5.25%.
The decision to break a run of 14 consecutive hikes comes amid signs of a slowing economy and softer-than-expected inflation data released Wednesday, which showed annual headline consumer prices rising by 6.7% in August, against forecasts of a 7% increase.
The outcome was close however, with the Bank’s Monetary Policy Committee split 5 to 4, the minority of members calling for a 25 basis point hike.
That lack of consensus and the MPC’s assertion that “policy will need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term,” saw U.K. government bond yields
BX:TMBMKGB-10Y
twitch but remain higher on the day in line with global trends.
“The Bank of England made it clear that it’s still locked in a fight against inflation. Rates could go up again in future, and at the very least are expected to hold at this level for a significant period until inflation is under control,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.
Nevertheless, the pound
GBPUSD,
extended the day’s losses, at one point dipping below $1.2240, its weakest since March. Interest rate-sensitive portions of the U.K. stock market were lifted by the news, with housebuilders such as Persimmon
PSN,
and Taylor Wimpey
TW,
gaining ground, helping the FTSE 100
UK:UKX
to recover earlier losses and trade up 0.1%.
The BoE’s pause contrasted with actions by its northern European peers on Thursday, with the central banks of Sweden and Norway both raising interest rates by a quarter of a percentage point to 4% and 4.25%, respectively, citing stubbornly high inflationary pressures. The Swiss central bank held its main policy rate at 1.75%, but warned another rise may be necessary.
European bourses tracked the latest retreat on Wall Street, with Germany’s DAX index
DX:DAX
off 1.2% and the CAC 40
FR:PX1
in France down 1.5% as more concerns about slowing Chinese demand hurt luxury goods stocks.
There were pockets of outperformance for some U.K retailers even before the BoE news as they shrugged off the economic headwinds buffeting Britain’s high streets. Shares of JD Sports Fashion
JD,
jumped more than 7% after beating analysts earning forecasts and increasing its interim dividend.
“While it is good practice to be cautious, JD Sports’ results still show a business in good health. Sales, profits and dividends are all up, it is investing in the business to support geographic growth, and it is finding new ways to keep customers happy and on its side,” said Russ Mould, investment director at AJ Bell.
Shares of Next
NXT,
the U.K.’s biggest clothing retailer, rose nearly 3% after it raised its full-year guidance having revealed higher first-half pretax profits boosted by online sales.
“Next has long been regarded as a well-oiled machine and clearly has the determination to drive progress. The combination of lower costs and an online offering which continues to prosper underpins financial performance and augurs well for future development of the offering as a whole,” said Richard Hunter, head of markets at Interactive Investor.
In the small caps, shares in London-listed Bluejay Mining
JAY,
tumbled 26% after the Greenland- and Finland-focused miner said it was considering a disposal of its Dundas ilmenite project in northwest Greenland following a disappointing updated resource estimate.
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