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U.K. Stocks Surge as BOE Says Rate Rise Unjustified

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July 4 (Bloomberg) -- U.K. stocks surged, sending the FTSE 100 Index up by the most since November 2011, after the Bank of England signaled that interest rates will remain at a record low for longer than expected.

Royal Bank of Scotland Group Plc and Barclays Plc jumped more than 4 percent as the central bank left its benchmark interest rate unchanged. Taylor Wimpey Plc led construction-related companies higher, rising 7.1 percent. EasyJet Plc gained 3.6 percent after the airline reported an increase in passenger numbers for June.

The benchmark FTSE 100 Index jumped 191.8 points, or 3.1 percent, to 6,421.67 at the close in London, extending gains after the BOE released its statement. All but two of the gauge’s companies rose. The FTSE All-Share Index advanced 3 percent today, while Ireland’s ISEQ Index gained 2 percent.

“The BOE’s comments on interest rates in the statement are very dovish,” said Ioan Smith, a strategist at Knight Capital Europe Ltd. in London. “It is clearly an attempt to talk down rates aggressively.”

The Bank of England signaled a growing concern about rising interest rates as it kept its stimulus program on hold at Mark Carney’s inaugural decision as governor.

The nine-member Monetary Policy Committee kept its benchmark interest rate at a record low of 0.5 percent and held quantitative easing at 375 billion pounds ($567 billion), as forecast by all economists in Bloomberg News surveys.

Implied Increase

“Market interest rates have risen sharply internationally and asset prices have been volatile,” the central bank said in a statement after the decision. “In the committee’s view, the implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy.”

Reports this week on manufacturing, services and the housing market signaled that the U.K. economy is strengthening. Data today showed house prices rose 0.6 percent to an average 167,984 pounds last month, the highest in almost three years, according to the mortgage unit of Lloyds Banking Group Plc.

The European Central Bank left its benchmark interest rate unchanged at a record low of 0.5 percent today. President Mario Draghi’s also said in a press conference that the ECB expects to keep interest rates low for an “extended period” after investors pushed up long-term bond yields this week, threatening the region’s economic recovery.

Bank Shares

RBS led a rebound in lenders, climbing 5.2 percent to 284.1 pence. Barclays advanced 4.3 percent to 292.7 pence and HSBC Holdings Plc, Europe’s largest bank, added 4.5 percent to 711.4 pence. A gauge of U.K. banks jumped 4.4 percent, rebounding from yesterday’s 1.5 percent selloff after political uncertainty in Portugal sent the 10-year bond yields above 8 percent for the first time since November.

Taylor Wimpey rallied 7.1 percent to 103.8 pence after the U.K.’s second-largest housebuilder by volume said its first-half profit margin in the UK exceeded 13 percent, as the government’s Help to Buy loan program lifted demand. That compares to 11.2 percent a year earlier.

Redrow Plc jumped 7.2 percent to 237.9 pence after the builder said pretax profit for the year ended June will beat analyst estimates. The forecasts range from 52.2 million pounds to 61.6 million pounds, according to Bloomberg Data.

Persimmon Plc and Barratt Developments Plc also advanced, rallying 4.4 percent to 1,266 pence and 5 percent to 333.8 pence respectively. Wolseley Plc, a supplier of plumbing products, jumped 5.1 percent to 3,200 pence for the second-biggest advance on the FTSE 100 today.

Passenger Numbers

EasyJet gained 3.6 percent to 1,367 pence as Europe’s second-largest budget carrier reported a 1.9 percent increase in passenger numbers to 5.54 million with a passenger load factor unchanged at 89.9 percent. Volume was just 24 percent of the stock’s three-month average, according to data compiled by Bloomberg.

Centamin Plc, a producer of gold in Egypt, surged 15 percent to 35.75 pence after the Egyptian army ousted President Mohamed Mursi. The company is embroiled in a legal dispute after Egypt’s administrative court made a preliminary ruling to annul its license for the Sukari gold mine, its only producing asset.

Rolls-Royce Holdings Plc gained 4.7 percent to 1,191 pence. British Airways said it will start regular services with the Airbus SAS A380 superjumbo a week earlier than planned. Rolls Royce is the sole engine provider for the superjumbo.

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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