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FTSE 100 Live: Pound drops 2% as Bank of England hikes rates into longest recession in modern history

FTSE 100 Live: Pound drops 2% as Bank of England hikes rates into longest recession in modern history

Interest rates today jumped 0.75% to 3% as the Bank of England steps up its fight against inflation.

The largest rise since 1989 took the Bank’s base rate at its highest level since 2008, heaping more pain on mortgage holders.

It came as the Bank also predicted a “prolonged” recession for the UK, which it said could be the longest economic contraction since records began.

Last night, the US Federal Reserve hiked by 0.75% for the fourth meeting in a row to leave its target range at 3.75%-4%.

FTSE 100 falls 108 points: evening wrap

Thursday 3 November 2022 17:43 , Simon Hunt

The FTSE 100 closed down 108 points to 18,110 after fierce sell-off following an announcement by the Bank of England to raise interest rates by 0.75% and forecast the longest recession in modern history.

Danni Hewson AJ Bell Financial Analyst comments on market close: “It might have been the hike that markets were expecting but that doesn’t mean it didn’t hurt. Warnings that the UK economy is facing the longest downturn in a century aren’t exactly easy to swallow, even if investors do understand why the medicine is being administered.

“Interest rate rises have already had an impact on house prices and, even if a 30% fall mooted by Nationwide seems extreme, there’s little doubt more expensive mortgages will throw a bucket of icy water on the housing market. Prices that already looked a bit of a stretch now seem to be totally out of reach and there’s real concern about how many post-pandemic buyers might find themselves in hot water, scalded by higher fixed rates, or even sinking into negative equity if they’ve gone all out to secure a dream home that might now become the stuff of nightmares.

“The financial sector hasn’t had a great day either despite the fact that rate rises are a boon. Banks and building societies will be taking a hard look at the loans on their books and making sure they’re covered if lenders struggle to pay.

“Despite all the gloom it is important to note that the impending recession is expected to be shallow and that the UK’s central bank is anticipating that rate rises shouldn’t have to go as far, or as fast, as markets had been expecting. But here investors have a right to be wary, since the MPC hasn’t exactly been reading their crystal ball with pinpoint accuracy when it comes to the path inflation will follow.

New York stocks knocked by outlook for more central bank rate hikes

Thursday 3 November 2022 13:43 , Michael Hunter

Wall Street stocks fell further in opening trade as investors mulled the outlook for the pace and extent of interest rate rises after the Federal Reserve’s latest 0.75% hike during the previous session.

The S&P 500 fell by over 1%, losing almost 40 points to 3721.46, as initial hopes that the Fed was setting its sights on reducing the size of its increases cooled after its chairman, Jerome Powell, called talk of when the tightening cycle would peak was “very premature”. After his words, the index closed down almost 3% and there was no let up as the new trading session began.

FTSE 250 tumbles almost 300 points as BoE hikes rates into a long UK recession

Thursday 3 November 2022 13:32 , Michael Hunter

Property stocks and fund mangers fell to the bottom of the FTSE 250 as the prospect of rising interest rates and a long recession reverberated across the stock index rooted in the domestic UK economy.

Some of the biggest falls came for stocks exposed to consumer spending, with higher mortgage costs and double-digit inflation set to hit household budgets across the UK.

Concern at the implications for house prices, amid forecasts of price drops as higher homeloan costs bite into the market, left property companies looking exposed.

Shares in LondonMetric Property, a real estate investment trust, fell almost 4% to 179p. Fellow Reit Hammerson was down over 4% to 19p. Capital & Counties was also down over 4% at 106p.

In the wider financial sector, where higher base rates can draw investors’ cash out of riskier funds, Ashmore’s stock dropped over 8% to 196p. Jupiter Fund Management fell by over 2% to 102p.

Among consumer stocks. soft drinks maker AG Barr fell over 2% to 444p and the birthday favourite Card Factory dropped 2.5% to 47p.

Overall, the FTSE 250 mid-cap stock index, which has deeper roots into the domestic UK economy, fell almost 300 points to 17957.05, a drop of 1.4%.

UK heading for longest recession in modern history, Bank of England warns

Thursday 3 November 2022 13:01 , Simon Hunt

Britain is heading for its longest recession in modern history with no recovery until summer 2024 the Bank of England warned on Thursday.

The bleak forecast from Bank officials came as its Monetary Policy Committee (MPC) voted 7-2 to hike its interest rate from 2.25 per cent to 3 per cent to curb inflation.

But in its report accompanying the rate decision the MPC said the UK economy faces “a very challenging outlook.”

GDP is forecast to fall 0.75 per cent in the second half of 2022 and continue in recession through 2023 and the first half of 2024 before an upturn begins.

read more here

Sterling falls under $1.12 after Bank of England hikes rates into ‘longest recession’ in modern history

Thursday 3 November 2022 12:54 , Michael Hunter

The pound has fallen under $1.12 to a fresh day-low after the Bank of England lifted interest rates to their highest level since the financial crisis at the same time as predicting a “prolonged” recession for the UK.

Sterling was down almost 2% at $1.1179, a two-week low. It came as the BoE’s Governor Andrew Bailey took reporters questions on his first rate call since the collapse of Liz Truss’s government after its “mini”-Budget caused a run on UK financial assets. The last meeting of the Monetary Policy Committee was held the day before Kwasi Kwarteng announced his ill-fated and uncounted tax cuts in the House of Commons.

Against the euro, the pound was 1.2% weaker with a unit of the shared currency costing £0.8722

Bank of England hikes rates by 0.75% to highest since 2008: City experts react

Thursday 3 November 2022 12:42 , Michael Hunter

The Bank of England’s Monetary Policy Committee has voted by seven to two to lift interest rates by 0.75% to 3%, the biggest single rise since 1989 and the highest level since the financial crisis.

The move, designed to tame runaway inflation, will hit thousands of homeowners with higher mortgage costs. It was expected in the City and came alongside a warning from policymakers that the UK faces a “prolonged” recession, a forecast which deterred them from adopting a bigger rise of 1%.

Here is a selection of some of the reaction to the news from experts in the Square Mile and beyond.

Hugo Davies, chief capital officer at LendInvest: “The MPC was backed into a corner today, with little option but to give what markets were demanding in the form of a 75bp rate hike. Their largest move in the current cycle though comes ... as expectations shift to prepare for a more fraught recessionary period. “We find ourselves in the throes of a credibility crisis between fiscal and monetary policy.”

Ben Woolman, director at property company Woolbro Group: “First-time buyers have been dealt blow after blow since the government introduced the stamp duty holiday at the beginning of the pandemic which, effectively, only benefitted existing homeowners and second-steppers. Following yet another rate rise by the Bank of England, young people will be scrimping and saving to buy their first home amid rising energy bills and rocketing rent prices. Sadly, for many, this will make putting money aside for a deposit each month next to impossible.”

Emma McClarkin, chief executive of the British Beer and Pub Association: “The last thing pubs and brewers want to do is put prices up for loyal customers but are stuck between a rock and hard place. The cost of running their businesses has become completely unsustainable, the price of key ingredients and utilities are rocketing, and now their customers will, understandably, be tightening their belts even further following the news of interest rates rising.”

Victor Lam, fiduciary iInvestment specialist at wealth manager ZEDRA: ”the market is anticipating a smaller December rate increase by the BoE although they [face a] lack of clarity on the government’s fiscal policy. Prior to the announcement sterling had been gradually falling versus the dollar and spiked below $1.12 when the rate increase was announced.”

Pound heads back down to day-lows as Bank of England predicts ‘prolonged' UK recession

Thursday 3 November 2022 12:22 , Simon Hunt

Sterling was heading back down to its lowest level of the day against the dollar after the Bank of England predicted a long UK recession alongside its vote to hike interest rates to their highest level since 2008.

Seven of the Monetary Policy Committee’s nine members voted for the 0.75% rise which took base rates to 3%. The BoE also said it expected the UK to enter a”prolonged” recession. It also said that consumer price inflation would “elevated at over 10% in the near term”, but would “fall sharply” from “mid-2023”.

The pound fell further toward its $1.12 low for the day and was down 1.4% to $1.1233 as traders absorbed the news.

Bank of England hikes UK interest rates by 0.75% to 3% in biggest rise in decades

Thursday 3 November 2022 12:00 , Michael Hunter

The Bank of England has hiked interest rates by 0.75% to 3%, in the biggest increase since 1989 to a level not seen since the 2008 financial crisis.

It comes as policymakers intensify their efforts to tame inflation and bring it down from double digits to their official target of 2%, but will mean mortgage misery for thousands of homeowners.

But worries about the increased cost of loans and mortgages on the UK’s stuttering economy meant the Monetary Policy Committee stopped short of voting for a bigger rise of 1%.

Pound under $1.13 as Bank of England rate hike looms

Thursday 3 November 2022 11:19 , Michael Hunter

Sterling was under pressure in the final run-up to the Bank of England’s monetary policy committee at midday, at which UK interest rates are set for the biggest rise in decades.

A hike of 0.75% is expected, which would take the rate on which the cost of loans and mortgages are based to to 3%.

That level has not been seen since 2008 when the country was gripped by the financial crisis and was moving into the low interest rate era that lasted all the way to the Covid-19 pandemic. It would also be the biggest regular rate rise since 1989 as policymakers fight to get inflation back under control and heading down toward to their target of 2%. Consumer price inflation, sent higher by rising energy costs after Russia’s invasion of Ukraine, was at 10.1% in September

Talk of an even bigger rate rise -- of 1% -- has waned in the run up to the meeting, on concern about the potential impact of faster rises to the cost of loans and mortgages on the UK’s stuttering economy.

The BoE follows the Federal Reserve, which put US rates up by 0.75% overnight, taking the top end of the Fed Funds target range to 4%. Amid a wider trend for a stronger dollar, the pound was down 1% into the UK rate call at $1.1266. It is down by over 16% for the year, with the dollars rally powered by expectations that the Fed has more room to raise rates faster due to the US economy’s deeper resilience.

Howden calms fears for home improvement: morning wrap

Thursday 3 November 2022 11:06 , Simon Hunt

Trade supplier Howden Joinery today allayed investor fears that kitchen makeover projects are being put on the back burner due to the cost of living crisis.

The former FTSE 100 company, which operates from about 800 depots, reported a record performance for its busiest trading period with year-on-year sales growth of 6.6%.

Boss Andrew Livingston said: “Trade customers have remained busy into the autumn with a good pipeline of work, as consumers continue to invest in and improve their homes.”

Livingston remains vigilant over potential headwinds but said current momentum meant full-year profits will be marginally ahead of the City’s consensus forecast.

Shares are down by more than 40% this year but rallied 3% or 17p to 535.6p today. Broker Peel Hunt, which has a price target of 700p, said: “This update demonstrates again that Howdens is a well-run business, which is continuing to take market share.”Howden’s improvement came in a downbeat session after the Federal Reserve last night signalled that US rates may rise for longer than expected in the fight against inflation.

Wall Street reversed after the guidance from Fed chair Jerome Powell, setting the tone for the FTSE 100 index to fall as much as 0.8%. It later stood 23.51 points lower at 7120.63.

RS Group, the former Electrocomponents business, posted the biggest top flight decline following its disclosure that boss Lindsley Ruth is taking time away from the business.

Shares fell 9% or 85p to 869.5p, even though RS revealed strong half-year revenue and profit performances and in-line trading for the first four weeks of the second half.

The FTSE 250 index dipped 0.8% or 142.96 points to 18,074.79, despite gains of 4% for Hikma Pharmaceuticals and insurer Lancashire Holdings following their trading updates.

Howden Joinery reassures on demand, FTSE 100 lower

Thursday 3 November 2022 10:20 , Graeme Evans

Howden Joinery has allayed investor fears that kitchen makeover projects are being put on hold due to the cost of living crisis.

The former FTSE 100 company, which operates from around 800 depots, reported a record performance for its busiest trading period with year-on-year sales growth of 6.6%.

Boss Andrew Livingston said: “Trade customers have remained busy into the autumn with a good pipeline of work, as consumers continue to invest in and improve their homes.”

Livingston remains vigilant over potential headwinds but said current momentum meant full-year profits will be marginally ahead of the City’s consensus forecast.

Shares are down by more than 40% this year but rallied 3% or 17p to 535.6p today. Broker Peel Hunt, which has a price target of 700p, said: “This update demonstrates again that Howden is a well-run business, which is continuing to take market share.”

Howden’s improvement came in a downbeat session after the Federal Reserve last night signalled that US rates may rise for longer than expected in the fight against inflation.

Wall Street reversed after the guidance from Fed chair Jerome Powell, setting the tone for the FTSE 100 index to fall as much as 0.8%. It later stood 23.51 points lower at 7120.63.

RS Group, the former Electrocomponents business, posted the biggest top flight decline following its disclosure that boss Lindsley Ruth is taking time away from the business.

Shares fell 9% or 85p to 869.5p, even though RS revealed strong half-year revenue and profit performances and in-line trading for the first four weeks of the second half.

The FTSE 250 index dipped 0.8% or 142.96 points to 18,074.79, despite gains of 4% for Hikma Pharmaceuticals and insurer Lancashire Holdings following their trading updates.

Life is tough for millions, Sainsbury admits

Thursday 3 November 2022 09:45 , Simon English

FRESH fears about the cost of living crisis emerged today when Sainsbury said it was being battered by inflation and admitted life “is tough for millions” of Britons.

Alongside Tesco, Sainsbury is one of only two of the big supermarkets left on the stock market, the others having been eaten by private equity.

That means it has to be upfront with investors about how tough it is finding the economy.

CEO Simon Roberts said: “"We really get how tough it is for millions of households right now. Customers are watching every penny and every pound and we know that they are relying on us to keep food prices as low as we can.”

Half-year profits slumped by a third to £376 million as it pumped money into lower prices as it fights off the challenge from Aldi and Lidl.

Sainsbury, like others including M&S, is removing “best before” dates where it can to reduce food waste.

Sales in the half year rose 4.4% to £16.4 billion. That was better than the City expected, sending the shares up 7p to 205p.

Charlie Huggins, Head of Equities at Wealth Club, said:

"These are solid enough results from Sainsbury’s, but it is difficult to get excited. It’s just such a tough industry, with fierce competition, fickle consumers and thin margins. To be fair to Sainsbury’s, it isn’t taking this lying down. It has lowered prices and significantly increased online capacity. But all this comes at a cost. With the economy being strangled by higher interest rates and inflation, Sainsbury’s will have to run very hard just to stand still."

With customers watching “every penny and pound” as rising interest rates and higher energy costs hit household budgets, Sainsbury and others are also under pressure to put staff wages up.

The price of basics such as tea and cooking oil have soared, with grain, oil and fertiliser supplies hit by the war in Ukraine.

Trainline returns to profit amid leap in festive demand

Thursday 3 November 2022 09:41 , Simon Hunt

Hopes for a surge in Christmas rail traffic after two Covid-hit years and demand for new digital season passes boosted online ticketing business Trainline as it returned to profit for the first half of the year.

CEO Jody Ford said demand for travel in the festive season was “good” and “healthy”, with some routes already “north of 90%” of pre-Covid levels, while some rail companies have yet to release tickets for the festive season.

“We expect to see lots of tourists in London for Christmas and we continue to see demand for that,” he said. “We’re working with our customers to alert them when they can book Christmas tickets.”

A surge in bookings from summer visitors from the US helped the FTSE 250 company more than double its revenue for the six months to the end of August to over £2 billion. Operating profit reached £17 million, from a loss of £9 million in the same period a year ago.

Trainline shares fell 1.5% to 336p.

AllSaints defies high street gloom with boost in sales

Thursday 3 November 2022 09:16 , Simon Hunt

Luxury designer AllSaints today defied high street gloom as it boasted of higher-than-expected sales over the summer.

The fashion brand posted revenues of £313 million in the year to January 2022, up 20% on last year, while operating profit increased to £10 million.

AllSaints said footfall at its stores had been higher than anticipated in the six months to July.

The retailer has worked to bolster its sustainability credentials, with 66% of its Spring collection certified as ‘sustainable’ and plans for ‘further progress’ in 2023.

AllSaints CEO Peter Wood said: “We see it as our responsibility to not only help our customers look good, but also feel good, safe in the knowledge that we have carefully considered the materials and production processes that we use to create our collections.”

FTSE 100 down as BT slides 6%, Sainsbury’s up 4%

Thursday 3 November 2022 08:46 , Graeme Evans

The FTSE 100 index is down 0.5% after US markets weakened in response to the latest interest rates guidance from the Federal Reserve.

The top flight stood 41.32 points lower at 7102.82, with electronics components supplier RS Group the biggest faller after its trading update and disclosure that chief executive Lindsley Ruth is taking time away from the business. Shares fell 10% or 92.5p to 862p.

BT Group also dropped 6% or 8.25p to 119.5p after its interim results, but the reaction to half-year figures from Sainsbury’s was positive after its shares lifted 4% or 7.35p to 205.2p.

Shares in North Sea explorer Harbour Energy also rose 2% after its production update but engines giant Rolls-Royce weakened 2.8p to 80.3p following its latest guidance.

The FTSE 250 index fell 0.9% or 159.18 points to 18,058.17, but Howden Joinery rose 2% or 12.4p to 531p in a busy session for mid-cap updates.

BT profits tumble

Thursday 3 November 2022 08:17 , Simon English

BT today upped its cost savings target by £500 million to £3 billion, raising the prospect of more job cuts and increasing the chances of another fight with unions.

The telecom giant has already seen the CWU, which represents 40,000 out of 100,000 staff, lead workers on strikes over pay.

Today chief executive Philip Jansen said the company would “leave no stone unturned to reduce waste, that will be across the board with everything”.

“The BT plan hasn’t changed,” he added. “We will go a little bit harder with everything.”

In the half-year profit fell 18% to £831 million, while revenue rose 1% to £10.4 billion.

Jansen said in a statement: "BT Group remains on the front foot in these turbulent times. Our strategy is working, we’re executing against our plan and we’re confident that we’ll deliver our long-term ambition while underpinning economic growth in the UK.”

BT is facing competition from around 100 so-called “alternets”, much smaller players trying to roll out broadband to help make Britain an ultra-fast wi-fi country.

There are some concerns that these firms might fail, forcing the government into a bailout as happened with smaller energy companies.

Jansen decline to be drawn on that issue, saying “I can’t really comment on other people’s business plans. At the end of the day the most important thing is customers, building a network is irrelevant if you haven’t got the customers.”

BT shares today fell 4p to 123p. That leaves them below the 130p a share at which they floated on the stock market three decades ago.

Peak for UK interest rates seen at 4.5%

Thursday 3 November 2022 07:49 , Graeme Evans

City expectations for today’s Bank of England meeting have fluctuated over recent weeks, reflecting the impact of political upheaval.

At the height of the mini-budget turmoil, Deutsche Bank said traders were braced for an inter-meeting hike and for rates to be as much as 2% higher by tonight. The situation has calmed since then and pricing is back at its original starting point of 0.75%.

However, today’s decision is unlikely to be unanimous, with at least two members of the Bank’s nine-strong monetary policy committee seen favouring a 0.5% rise.

Deutsche Bank expects the base rate to eventually reach 4.5%, with half-point rises at the Bank’s meetings in December and February followed by smaller hikes of 0.25% in March and May.

RS Group boss steps away on day of half-year results

Thursday 3 November 2022 07:39 , Graeme Evans

The CEO of electronics business RS Group is to take an immediate leave of absence due to ‘personal reasons’ on the day the company published its half year results.

Lindsley Ruth will be replaced by CFO David Egan for an unspecified period of time.

The firm posted a 30% growth in sales in the six months to September to £1.5 billion, while profits grew 29% to £187 million.

RS Group said trading continues to be in line with expectations.

US rates guidance hits Wall Street, FTSE 100 seen lower

Thursday 3 November 2022 07:28 , Graeme Evans

Wall Street’s expectations for a softening in the Federal Reserve’s approach to raising interest rates have cooled after comments from chair Jerome Powell last night.

In the press conference following the Fed’s fourth consecutive 0.75% rise to 3.75%-4%, he said policymakers had some way to go in bringing inflation back under control.

A further 0.5% increase is seen as likely in December, with the eventual terminal rate now seen as high as 5%. The admission that rates might need to rise by more than expected saw the US dollar and bond yields reverse course, rallying to the highs of the day.

Stock markets also fell sharply, with the Dow Jones Industrial Average finishing 1.5% lower and the S&P 500 and Nasdaq Composite falling 2.5% and 3.4% respectively.

CMC Markets expects the FTSE 100 index to open 34 points lower at 7110.