U.K. Stocks Retreat as BOE Warns of ‘Weaker’ Economy; Banks Drop

U.K. stocks fell, erasing an earlier rally, as the Bank of England warned that the outlook for Britain’s economy has worsened and a report showed that unemployment increased the most since 2009.

Standard Chartered Plc (STAN) and Prudential Plc led banks and insurers lower. ICAP Plc (IAP) lost 4.7 percent after reporting earnings. Energy companies paced advancing shares as crude oil rallied above $100 a barrel in New York.

The FTSE 100 Index (UKX) fell 8.42, or 0.2 percent, to 5,509.02 at the close in London. The gauge earlier climbed as much as 0.8 percent after the European Central Bank was said to have bought Italian bonds in larger-than-usual quantities. The FTSE All- Share Index slipped 0.1 percent, while Ireland’s ISEQ Index rose 0.6 percent.

“The FTSE 100 endured another choppy and rollercoaster session after the Bank of England sharply revised growth forecasts,”said Joshua Raymond, chief market strategist at City Index. “Banks and insurance firms, the key areas of risk associated with liabilities to sovereign debt, are the two sectors that continue to see weakness.”

The FTSE 100 tumbled as much as 1.2 percent after BOE Governor Mervyn King said Britain faces a “markedly weaker” outlook for economic growth and persistent danger from the euro area’s sovereign-debt crisis.

“The prospects for the U.K. have worsened,” the central bank said in its quarterly inflation report. Based on its 275 billion-pound ($434 billion) bond-buying program remaining unchanged, inflation may fall below the central bank’s 2 percent target in two years.

A separate release from the Office for National Statistics showed U.K. unemployment jumped in the third quarter by 129,000 to 2.62 million, the biggest increase since 2009.

Vodafone, BSkyB

Gains on the FTSE 100 were also limited as companies including Vodafone Group Plc (VOD) and British Sky Broadcasting Group Plc (BSY) traded without the right to their latest dividends.

A gauge of bank shares dropped 1.1 percent for a third day of losses. Standard Chartered lost 1.9 percent to 1,330 pence, HSBC Holdings Plc slid 1.3 percent to 494.85 pence and Lloyds Banking Group Plc fell 1.3 percent to 26.94 pence.

Prudential led insurers lower, falling 2.2 percent to 615.5 pence, Aviva Plc slid 1.3 percent to 308 pence and Admiral Group Plc retreated 3.6 percent to 800.5 pence.

ICAP dropped 4.7 percent to 349.9 pence after the biggest broker of transactions between banks reported a 3 percent climb in first-half profit to 101 million pounds. The shares fell as the company said it has seen reduced appetite for risk.

Energy Companies Advance

Cairn Energy Plc led energy shares higher as crude oil spiked in New York. Cairn gained 2.4 percent to 295 pence, while BP Plc rose 1.6 percent to 464.25 pence and Tullow Oil Plc added 1.2 percent to 1,378 pence.

Crude oil surged above $100 a barrel to a five-month high after Canada’s Enbridge Inc. said it will reverse the direction of the Seaway pipeline, opening an outlet for crude from the central U.S. and Canada.

Intertek Group Plc (ITRK) gained 3.5 percent to 1,952 pence, for the biggest rally on the FTSE 100. The world’s largest consumer- goods testing company reported year-to-date organic revenue growth of 8 percent, in line with half-year results.

Meggitt Plc (MGGT) gained 2.4 percent to 391.9 pence and Tate & Lyle Plc (TATE) rose 0.8 percent to 689.5 pence as both companies were added to the MSCI United Kingdom Index. Joining a gauge can affect companies’ share price because funds tracking indexes need to adjust their portfolios.

Barratt, Game Group

Elsewhere, Barratt Developments Plc jumped 7.1 percent to 96.05 pence after the U.K.’s largest homebuilder by volume said its average selling price rose by 7 percent to 207,000 pounds since July as the company built a greater proportion of houses than apartments.

Game Group Plc sunk 46 percent to 10.25 pence after the U.K. computer-game retailer reported a 10.6 percent drop in total sales in the 41 weeks to Nov. 12 and lowered its full-year revenue forecast.

In Ireland, Paddy Power Plc (PWL) rallied 5.7 percent to 43 euros after the gambling company forecast full-year earnings growth that topped analysts’ estimates.

To contact the reporter on this story: Sarah Jones in London at sjones35@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

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