FTSE 100 Live: Pound falls after Bank of England hikes interest rates by 0.5%; Gas prices jump sixfold

The pound fell as the Bank of England lifted interest rates by 0.5% today, adopting a softer hike than the 0.75% rise last time, taking UK base rates to 3.5% with the Monetary Policy Committee split three ways.

Last night, the Federal Reserve hiked rates by 0.5% to a range of 4.25% and 4.5% and warned of an eventual peak above 5%.

Meanwhile, one measure of wholesale gas prices rose sixfold in six weeks as the winter weather meant Brits put the heating on.

FTSE 100 Live Thursday

• Bank of England set to lift rates 0.5%

• Markets fall on Federal Reserve rates guidance

• Gas price jumps sixfold in six weeks

That’s all folks. Tomorrow: UK retail sales and EU inflation

Thursday 15 December 2022 17:33 , Simon Hunt

That concludes our liveblog coverage today, on the day the Bank of England raised interest rates to the highest levels seen in over 14 years.

The Evening Standard City desk will be back at 7am tomorrow where we’ll have more details on UK retail sales data, shedding light on the health of the retail sector ahead of the crucial Christmas trading period. We’ll also have inflation data from Germany and the EU more widely.

FTSE 100 down 48 points: Evening wrap

Thursday 15 December 2022 16:10 , Simon Hunt

The FTSE 100 is down 48 points to 7,448 as we near the end of the day’s trading session in London after the Bank of England opted to hike interest rates by 0.5%.

The news sent the FTSE falling, while the pound also edged lower.

Online supermarket Ocado dropped the most, down around 4%, followed by packaging business DS Smith and Assoicated British Foods, down 3.5% and 3.2% respectively.

Laith Khalaf, head of investment analysis at AJ Bell, said: “2022 has been about whether the Bank of England is up to the task of taming inflation, on which score it’s really pulled every lever that could be expected. There are now very good reasons to think that we are slipping off the back of the peak in inflation, but there are still risks emanating from energy prices and the labour market.

“2023 might therefore be about how the central bank reacts to stickier, but more modest inflation. It’s not very controversial to raise interest rates when inflation is in double digits.

“Rate rises hurt, but most people nod their head sullenly and mutter something about the greater good. If inflation falls to more modest levels, though still above the 2% target, the interest rate committee may come under pressure to loosen things up a bit. Most people would probably tolerate 3% inflation if it meant mortgage rates coming down.”

Tax-free shopping is a simple gift for growth, argues Ed Vaizey MP

Thursday 15 December 2022 15:53 , Simon Hunt

Not only is British spending moving to the EU, but global brands are also revising their capital investment plans as a result of the lack of tax-free shopping, MP Ed Vaizey writes in today’s Standard.

“Last week, Jeremy Hunt unveiled the “Edinburgh Reforms”, with the aim of revolutionising the UK’s financial service sector, seizing the benefits of Brexit and promoting growth.

“It was a vital step by the Chancellor to assist Britain’s financial service industry and secure its international competitiveness. However, many other industries also offer opportunities to support growth following Brexit, with the possibility of drastic benefits in towns and cities across the country. A similar opportunity is the VAT Retail Export Scheme or tax-free shopping.

“The Chancellor’s efforts to restore confidence by cancelling many elements of the mini-Budget were crucial for regaining stability. However, by dismissing calls for the reinstatement of tax-free shopping, he also threw away a key opportunity for growth.”

read more here: Tax-free shopping is a simple gift for growth, argues Ed Vaizey MP

US stocks open lower over fears of further rate hikes

Thursday 15 December 2022 14:43 , Simon Hunt

US stocks fell in the opening minutes of trading on Wall Street as investors were spooked by guidance from the Federal Reserve to continue with its tight monetary policy.

The Nasdaq fell 1.42%, while the S&P 500 index dropped 0.92% and the Dow Jones slipped 0.57%.

It comes after both the European Central Bank and the Bank of England took the decision to raise interest rates by 0.5% earlier today.

Daniel McCormack, Head of Research at Macquarie Asset Management commented: “The ECB also revised down its growth projections and, like the Bank of England, is being forced to tighten monetary policy even though the Euro area economy is probably in recession.

“While the ECB expects the recession to be “short-lived and shallow”, much will depend upon the evolution of inflation from here. Our expectation is that the Euro area economy will remain in recession until the middle of 2023 before recovering steadily in the second half of the year.”

European Central Bank lifts eurozone interest rates by 0.50% to 2%

Thursday 15 December 2022 13:35 , Michael Hunter

The European Central Bank has become the latest major monetary policy maker to hike interest rates, and has also made its own fight against inflation less aggressive.

The ECB voted for a 0.50% hike to 2%, softer than the 0.75% increase adopted in October and September.

It is the fourth increase in eurozone rates of 2022 and was widely anticipated by markets.

Bank of England rate rise: Mortgage impact explained

Thursday 15 December 2022 13:20 , Michael Hunter

The Bank of England’s decision to increase interest rates bu 0.50% will be felt by variable rate mortgage holders across London and the UK. Here’s look a what the impact will be from The Standard’s Business Editor Jonathan Prynn:

Only those borrowers with tracker or variable mortgages that move in line with the Bank’s benchmark interest rate will be initially affected. There are thought to be around 200,000 mortgages of this type outstanding in the capital - about 20 per cent of the total.

It will increase the monthly repayment bill for a typical £250,000 London tracker mortgage with 20 years to run by £65.87 from £1482.22 to £1548.09, an annual rise in household costs of £790.

For a larger £300,000 loan the increase is £79.04 from £1778.66 to £1857.70 while those who have taken out £500,000 mortgage the hike is £132.26 from £2964.44 to £3096.17.

The vast majority of borrowers are protected by two or five year fixed rates but the Bank said earlier this week that around four million mortgage holders will be exposed to higher rates over the next year when cheap fixed deals expire. On Thursday, the average two year fixed rate stood at 5.83 per cent while the average five year rate is 5.63 per cent, according to latest data from analysts Moneyfacts.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Borrowers who are worried about paying their mortgage should get in touch with their lender. It may be possible to extend the term of the mortgage, change to interest-only or part interest-only/ part repayment.

“There are implications in making these adjustments but borrowers could do this on a short-term basis and when the opportunity arises, move back to full repayment, making overpayments to get back on course.”

Read the full report on the latest interest rate rise here.

Pound takes a hit as Bank of England softens rate rise amid three-way split among policymakers

Thursday 15 December 2022 12:33 , Michael Hunter

Sterling fell on global currency markets after the Bank of England voted for a softer rate rise of 0.50%, with only one of the nine members on the monetary policy committee voting to stick with a 0.75% hike.

The decision took UK base rates to 3.5% and their highest since the financial crisis back in 2008. There were three dissenters on the nine-strong MPC, with the other two calling for rates to stay at 3%.

That led markets to look again at where UK rates might peak in the fight against inflation, and a rise in expectations for a rise of 0.25% at the BoE’s next policy meeting.

As traders absorbed the announcement, the pound fell 0.8% to $1.2316.

At a glance: Bank of England’s battle with inflation

Thursday 15 December 2022 12:21 , Michael Hunter

Here is a look at the Bank of England’s battle to get double-digit inflation back toward its 2% government-mandated target.

As the chart shows, inflation has been significantly above that level for the whole of 2022. Sent surging up to 40-year highs by rising energy costs after Russia’s invasion of Ukraine, it remains around 11%, although there were signs this week that it may have peaked just over that level, after the consumer price index for November eased to 10.7%.

Higher interest rates are the main tool policymakers have to fight inflation and increase the cost of millions of financial products from mortgages to loans which track base rates.

Analysts react to Bank of England rate rise

Thursday 15 December 2022 12:16 , Simon Hunt

City analysts have shared their reaction to the Bank of England’s interest rate rise, in which six members of the Monetary Policy Committee voted for a 50 basis points rise, with one voting for a 75 point rise and two voting for no change.

Marcus Dixon, director of UK residential research at agents JLL said: “We expect bank rates to top out at around 4.5%, lower than some were forecasting a few months ago. This aligns with the assumptions in our house price forecasts, with prices expected to fall 6% in 2023 across the UK before beginning to recover in 2024.”

Hussain Mehdi, Macro & Investment Strategist at HSBC Asset Management, commented: “The Bank finds itself in an increasingly tough spot as the emerging recession and financial stability concerns are balanced against ongoing wage pressures which risk embedding inflation. This is reflected in today’s wide range of voting decisions. A downshift to 0.5% is sensible and we think the MPC will tread a more cautious path in 2023 as it assesses the impact of previous tightening on a weakening economy.”

Douglas Grant, Group CEO of Manx Financial Group PLC, said: “A rise in interest rates was expected despite fears the UK is falling into recession and has reached the highest level since October 2008. The hikes should continue to act as a wakeup call for SMEs to review their existing lending situation and ensure they are prepared. This week’s slowing inflation data suggested that we may have reached a peak but still represented eye watering numbers and indicate that the start to 2023 will be difficult for many SMEs.”

Colin Dyer, financial planning expert at abrdn said: “With undeniable financial pressure on cash-strapped households right now, another hike to interest rates will come as a further blow for borrowers battling to stand on two feet.

“The Autumn Statement did almost nothing to squash money worries for most, especially with tax freezes leaving some facing the prospect of higher tax bills for many years to come. On top of this, eye-watering inflation isn’t going to ease anytime soon, so those that are able to save must do what they can to protect their future finances.”

Bank of England’s 0.5% rate hike takes cost of borrowing to highest since 2008

Thursday 15 December 2022 12:14 , Michael Hunter

UK interest rates have hit their highest since the 2008 financial crisis.

It comes after the Bank of England’s Monetary Policy Committee voted by 6 to 3 for a 0.5%. Two members voted to leave rates on hold and one called for a 0.75% rise, in line with the bigger move the MPC adopted at its last meeting.

The vote comes as the BoE continues to fight double-digit inflation in an effort to get it back toward its official target of 2%.

Bank of England raises interest rate by 0.5%

Thursday 15 December 2022 12:02 , Simon Hunt

Thousands of London families were dealt a new cost of living blow today when the Bank of England ordered a 0.5 per cent rise in interest rates to a 14 year high of 3.5 per cent.

The half point hike is the ninth in succession from the Bank’s Monetary Policy Committee (MPC) since it first began raising the cost of borrowing to curb rampant inflation almost exactly a year ago.

The rate setting MPC, chaired by the Bank’s Governor Andrew Bailey, voted 6 to 3 for the increase, which was in line with City expectations.

It is lower than the MPC’s 0.75 per cent rise last month and follows a similar 0.5 per cent increase in rates from the US Federal Reserve last night.

Only those borrowers with tracker or variable mortgages that move in line with the Bank’s benchmark interest rate will be initially affected.

There are thought to be around 200,000 mortgages of this type outstanding in the capital - about 20 per cent of the total.

Majority of market looks for 0.5% rise as investors await Bank of England interest rate update

Thursday 15 December 2022 11:43 , Simon Hunt

The Bank of England is expected to hike interest rates by another 0.5% in the coming minutes.

69.9% of analysts are expecting a 0.5% rate rise at midday, while 30.1% expect it to be 30.1%, according to polling conducted by Reuters.

Markets weaken on US economy outlook

Thursday 15 December 2022 10:11 , Graeme Evans

Signs that borrowing costs will stay high for longer sent a jolt through global markets today after the Federal Reserve warned the fight against inflation is far from over.

US policymakers last night delivered their expected 0.5% rise in the Fed funds rate to 4.25%-4.5%, but chair Jerome Powell made it clear the central bank still had “some ways to go” before it can declare victory.

Inflation is down to 7.1% from June’s peak of 9.1%, but projections show price pressures lingering and the need for rates above 5% by the end of next year.

This raised fears of a hard landing for the US economy, particularly as the bank scaled back its 2023 growth estimate to 0.5% and forecast an unemployment rate rising to 4.6%.

Global markets have rallied since mid-October but the S&P 500 index closed lower last night and European markets followed suit as the FTSE 100 index slipped 0.7% or 54.77 points to 7441.16. The FTSE 250 index weakened 113.34 points to 18,924.58.

UBS Global Wealth Management believes markets have previously gone “too far too fast” in pricing an end to the rate hiking cycle.

Chief investment officer Mark Haefele said: “The S&P 500 is now around 12% up from its 2022 low struck in mid-October. We do not see this as fully reflecting the drag on growth imposed by prior tightening.”

Associated British Foods, Burberry and DS Smith led London’s fallers board, reflecting the start of trading without the right to their latest dividend awards. AstraZeneca also fell 70p to 11,334p despite Deutsche Bank raising its price target to 13,000p.

The session also saw a rare stock market debut following a year short on new listings.

AI-based cybersecurity business Smarttech247 raised £3.7 million by placing shares at 29.66p for a market capitalisation of £36.8 million. The Cork-based company, which has operations in London and Belfast, later stood at 30p.

Immigration contracts fill hole left by Covid for Serco

Thursday 15 December 2022 09:51 , Simon English

OUTSOURCING giant Serco has moved nimbly to grab immigration and security contracts to fill a hole left by Covid-19 related work.

Departing boss Rupert Soames, the grandson of Winston Churchill who is credited with turning around a once scandal-torn business, was able to offer the City a profit uplift.

Full year profits should hit £235 million, £5 million better than expected, with revenues topping £4.5 billion.

In 2019 Serco was fined £23 million in a settlement with the Serious Fraud Office for understating its profits from electronic tagging of prisoners.

Soames said he was “mortified, embarrassed and angry” by the failings.

Today he said: “2022 will turn out much better than we expected at the start of the year as strong growth across the business largely replaced Covid contracts. Revenue is expected to be 8% higher and underlying trading profit around 20% better than we anticipated when we first gave guidance in December 2021.”

Serco shares are up 20% this year. Today they dipped 3p to 155p, which leaves the business valued at £1.8 billion.

The group’s rosier profit outlook also comes despite the firm handing out £9 million in one-off payments to about 45,000 non-management staff since August to help with the cost-of-living crisis.

It took a £480 million hit from the fall off in Covid-related business. But the group said its north American defence business having had a “particularly strong year” for orders.

Serco added that 2023 is set to be in line with forecasts for underlying trading profits to be “similar” to 2022, at around £235 million.

Soames is handing over the reins at the end of December to Mark Irwin, a private equity veteran who has been at Serco since 2013.

Gas price jumps sixfold in six weeks as Brits put the heating back on to battle winter freeze

Thursday 15 December 2022 09:45 , Simon Hunt

The arrival of cold winter weather has sent wholesale gas prices sharply higher as Brits reach for the thermostat into some of the longest nights of the year.

On one industry measure, prices have seen a sixfold increase in six weeks. Numbers out today from the Office for National Statistics show that the 7-day rolling System Average Price of Gas spiked up to its highest since September, more than trebling in a month.

Households are protected from the increase by the government’s Energy Price Guarantee, which caps the annual cost of the average amount of gas used by UK households at £2,500 this year. It will rise to £4,279 from January. Rising prices mean the government’s intervention will cost taxpayers more.

More pressure on HSBC from investors

Thursday 15 December 2022 09:35 , Simon English

HSBC came under more pressure today when investors in Hong Kong said it should increase its dividend and sell off some assets.

Yesterday HSBC said it would stop funding new oil and gas fields in a victory for pressure group ShareAction.

Top shareholders Ping An Insurance Group has been publicly calling for a break up of the vast business. It wants job cuts and the disposal of what it regards as “peripheral” non-Asian businesses.

HSBC insists a global presence lowers its finance costs.

In Hong Kong, retail investors led by Ken Lui remain angry that the bank scrapped its dividend in 2020 during the Covid-19 pandemic. It has resumed payouts but not quarterly, as it did before.

Lui said HSBC, “underperforms its peers, violates dividend commitments (and) ignores shareholder interest”.

The bank’s management was "turning a deaf ear to the voice of minority shareholders," he said.

Analysts are unsure if a break-up of the group would lead to increased shareholder value. So far, no other big players have come out in support of the Ping An proposals.

HSBC had no immediate comment.

Drax raises full-year earnings as demand for renewable energy grows

Thursday 15 December 2022 09:23 , Simon Hunt

Power generator Drax raised its full-year earnings guidance to above the top of the range of analyst forecasts today as worries over Europe’s energy supply helped bolster demand for its renewable power.

The Selby-based business, which has been the beneficiary of a surge in energy prices following the Russian invasion of Ukraine in February, said it had seen growing global demand for its ‘negative emissions’ technologies designed to remove carbon dioxide from the atmosphere, such as using bioenergy with carbon capture with storage, and plans to accelerate its multi-billion pound investment plans to meet demand.

Drax said it generated 20% of UK renewable energy at peak demand between January and October this year.

CEO Will Gardiner said: “During the difficult winter ahead, we will continue to optimise our biomass operations to ensure that more renewable power is available, when the country needs it most.”

Drax shares climbed 0.24% to 628p.

US rates outlook knocks FTSE 100, Currys down 5%

Thursday 15 December 2022 08:54 , Graeme Evans

The FTSE 100 index and other European benchmarks have fallen after Federal Reserve policymakers pointed to interest rates above 5% next year.

Investors were spooked by borrowing costs staying higher for longer as the FTSE 100 fell 56.34 points to 7439.59 and the FTSE 250 lost 0.8% or 157.22 points to 18,880.70.

Big fallers in London included HSBC and Anglo American with declines of more than 1.5%. Associated British Foods, Burberry and DS Smith led the fallers board, reflecting the start of trading without the right to the latest dividend awards.

Electricals business Currys topped the FTSE 250 fallers after losing 5% or 3.6p to 61.7p in the wake of half-year results. But self-storage business Big Yellow rallied 15p to 1169p after benefiting from a broker upgrade by Morgan Stanley.

BoE and ECB seen hiking 0.5%, pound under pressure

Thursday 15 December 2022 08:16 , Graeme Evans

The Bank of England, European Central Bank and Swiss National Bank are all expected to follow the lead of the US Federal Reserve by hiking interest rates by 0.5% today.

Among the three, ING’s currency team regard the ECB as the one with the higher chance of surprising with a larger hike.

On the Bank of England, ING said November’s 0.75% increase appeared to be a one-off move: “We currently forecast another 0.5% hike in February, which would bring the tightening cycle to an end as rates hit 4.5%.”

The pound fell back following last night’s Federal Reserve projections and stood just below $1.24 this morning.

ING added: “Heading into the new year, we still see a preponderance of downside risks for GBP/USD as hawkish central banks (above all, the Fed) hiking into a recession point to the underperformance of highly risk-sensitive currencies like the pound.”

Currys reports half-year loss of almost £550 million after big impairment charge and slump in International profits

Thursday 15 December 2022 08:00 , Michael Hunter

International sales at Currys tooka hit from what it called “competitors’ heavy discounting”, contributing to an interim loss of almost £550 million at the FTSE 250 electrical goods retailer.

While much of the loss came from a £511 million impairment charge relating to 2014 merger with Dixons Carphone, its chief executive, Alex Baldock, said “It’s a tough environment, and we are planning for that to continue.”

Nonetheless, it said the market for tech, boosted by Covid-era lockdowns, remained larger than the before the pandemic, and it said there was a strong performance from its core UK and Ireland business.

Baldock added: “Currys UK&I performance continues to strengthen, and is showing real momentum, reflecting good progress in our transformation. International, however, has had a tough period, and faces short-term but intense pressures from a disrupted market.”

He also described the impairment charge as “a technical accounting matter”, which was unrelated to the performance of the business.

Shares in the company opened down 4.3p, or almost 7%, to 61.8p.

US shares fall after Fed update, FTSE 100 seen lower

Thursday 15 December 2022 07:42 , Graeme Evans

The S&P 500 index finished 0.6% lower last night, having been 0.7% higher immediately before the Federal Reserve decision.

The sell-off followed a fresh round of projections from policymakers, with the median being for rates to rise to 5.1% by the end of next year.

Fed chair Jerome Powell added that the central bank still had some way to go to ensure the fight against inflation is won. Wall Street currently expects a further 0.25% increase at the Fed’s next meeting in February.

The upper end of the Fed funds target range is currently 4.5%, but Deutsche Bank pointed out this morning that this is 3.6% above where markets thought the level would be at this point last December.

Asian markets fell this morning following the negative finish on Wall Street, while CMC Markets expects the FTSE 100 index to open 11 points lower at 7485.

Elon Musk sells $3.6 billion in Tesla shares

Thursday 15 December 2022 07:36 , Simon Hunt

Elon Musk has sold another big tranche of Tesla shares for the fourth time in a row in 2022.

The Tesla boss sold about $3.6 billion in Tesla shares earlier this week, filings published this morning show, taking the total sold this year to almost $40 billion.

Tesla shares have sunk almost 50% since the start of the year, with some investors expressing frustration over Musk’s decision to devote more of his time to running social media site Twitter.

The dwindling stock price has meant Musk has now ceased to be the richest person in the world, according to Forbes, being replaced by the French boss of LVMH, Bernard Arnault.

Federal Reserve hikes by 0.5%, more rises expected

Thursday 15 December 2022 07:24 , Graeme Evans

The US Federal Reserve last night lifted its benchmark rate by 0.5%, a smaller rise than the 0.75% increases it has used in its fight against inflation at its last four meetings.

Markets were expecting the softer increase after a fall in November’s inflation rate to 7.1% earlier this week.

Last night’s move took the upper end of the Fed Funds target rates range to 4.5%, the highest level since 2007 after seventh consecutive increases.

This is unlikely to be the end of the hiking cycle, however, with projections from policymakers pointing to a level of between 5% and 5.5% by the end of next year.