U.K. Stocks Drop as Fed, BOE Lower Economic Forecasts; Rio Tinto Declines

U.K. stocks fell after the Federal Reserve said the U.S. economy’s recovery is likely to be “more modest” than forecast and the Bank of England cut its estimate for U.K. growth.

Rio Tinto Group and HSBC Holdings Plc led raw-material and banking shares lower. Standard Life Plc, Scotland’s biggest life insurer, declined 3.6 percent after profit missed analysts’ estimates. Inmarsat Plc and TUI Travel Plc fell after brokerages downgraded recommendations on the companies’ shares.

The benchmark FTSE 100 Index slid 131.2, or 2.4 percent, to 5,245.21 at the 4:30 p.m. close of trading in London. Even so, the gauge has rallied 9.1 percent from this year’s low on July 1 as companies reported earnings that topped analysts’ estimates and concern eased that the global economy may be tipping back into recession. The FTSE All-Share Index declined 2.4 percent and Ireland’s ISEQ Index fell 2.2 percent today.

“Overall, the evidence points to a slowing in the rate of recovery rather than a renewed recession,” said Max King, an investment strategist at Investec Asset Management in London. “The evidence of a return to recession in developed markets is limited, but that does not make it impossible. The authorities have few options if activity weakens.”

The Federal Open Market Committee yesterday said that it will reinvest the proceeds from maturing mortgage-backed securities in long-dated U.S. Treasuries, marking the Fed’s first attempt to bolster growth since March 2009 as it tries to keep the slowing U.S. economy from relapsing into recession.

BOE Cuts Forecast

The Bank of England cut its forecast for U.K. economic growth and said inflation will undershoot its target in 2012, signaling the economy may need more emergency stimulus. Inflation will be at about 1.5 percent in two years, lower than the 2 percent goal, the central bank said in its quarterly Inflation Report in London today. Economic growth will probably peak at a 3 percent annual pace instead of the 3.6 percent rate forecast in May.

Consumer confidence dropped in July for a third month, plunging to the lowest level since the aftermath of the economy’s worst quarterly contraction in three decades last year, Nationwide Building Society said.

Rio Tinto, the world’s third-largest mining company, lost 3.1 percent to 3,256 pence. Shell, Europe’s biggest oil producer, sank 2.3 percent to 1,780.5 pence.

Crude oil and metals prices dropped amid signs the world economy is struggling to sustain its recovery.

HSBC, Europe’s largest bank slid 1.9 percent to 657.5 pence. Lloyds Banking Group Plc, Britain’s largest mortgage lender, slumped 6.8 percent to 70.03 pence.

Standard Life Slips

Standard Life declined 3.6 percent to 208.6 pence after saying operating profit rose 10 percent to 182 million pounds ($285.1 million), missing analysts’ estimates as earnings from pensions slumped in the U.K. and Canada.

Inmarsat, the biggest provider of satellite services to the maritime industry, lost 4.8 percent to 702.5 pence as Nomura Holdings Inc. downgraded its recommendation on the shares to “neutral” from “buy.”

TUI Travel retreated 6.5 percent to 190 pence. Exane BNP Paribas lowered its stance on Europe’s largest travel operator to “neutral” from “outperform.”

Thomas Cook Group Plc slipped 2 percent to 180.2 pence. Europe’s second-largest travel company said its nine-month loss widened because the volcanic ash cloud disruption cost it more than estimated and good weather deterred Britons from booking holidays abroad this summer.

Micro Focus plummeted 28 percent to 300 pence, the stock’s biggest decline since February 2006. The U.K. business-software maker, whose clients include Tesco Plc, said underlying revenue was “flat” in the first quarter and cut its full-year sales forecast.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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