U.K. Stocks Sink as BOE Spurs Speculation of Rate Hike

U.K. stocks tumbled the most in almost three months as the Bank of England said unemployment will probably reach its threshold to consider increasing interest rates sooner than previously forecast.

Standard Chartered Plc and Barclays Plc led banks lower, losing more than 2 percent. Flybe Group Plc slid the most since June after its largest shareholder sold its entire stake in Europe’s biggest regional airline. J Sainsbury Plc gained the most in 19 months as Britain’s third-biggest supermarket chain posted earnings that exceeded analysts’ estimates.

The FTSE 100 Index retreated 96.79 points, or 1.4 percent, to 6,630 at the close in London, the biggest drop since Aug. 15. The gauge has still soared 12 percent this year as the Federal Reserve maintained stimulus measures. The broader FTSE All-Share Index also lost 1.4 percent today, while Ireland’s ISEQ Index slid 0.7 percent.

“Investors had a myopic focus on the Bank of England’s unemployment projection; they feared it would be brought forward and it was,” said Guy Foster, the London-based head of portfolio strategy at Brewin Dolphin Ltd., which oversees 28 billion pounds ($44.7 billion). “The Bank of England expects the unemployment threshold to be passed in 2015. Traders think the risk of interest rates rising has increased.”

Royal Dutch Shell Plc, GlaxoSmithKline Plc and two other companies in the FTSE 100 are trading without the right to the latest dividend payment today, shaving 11.6 points off the benchmark measure.

Inflation Report

The Bank of England, in its quarterly Inflation Report, said the U.K. jobless rate may fall to its 7 percent threshold for considering interest-rate increases as early as the third quarter of 2015. The bank had previously expected unemployment to stay above the threshold until the second quarter of 2016.

The jobless rate as measured by International Labour Organisation standards declined to 7.6 percent in the three months through September, the lowest since 2009, the Office for National Statistics said today.

In the U.S., Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday a tapering of bond purchases “ought to be on the table at upcoming meetings” of the Federal Open Market Committee, including one on Dec. 17-18.

Janet Yellen, who was named last month as successor to Fed Chairman Ben S. Bernanke, will express her views publicly for the first time in seven months on the stimulus measures she has supported in testimony to the Senate Banking Committee tomorrow.

Standard Chartered

Standard Chartered lost 2.5 percent to 1,448 pence as Mizuho Securities Co. downgraded the lender to underperform from neutral. The U.K. bank that makes three-quarters of its profit in Asia, said this week it may not reach its target of growing revenue by at least 10 percent for the next “couple of years.”

“Considering management’s downbeat outlook for revenue for several years to come, we feel we have no choice but to downgrade the stock,” Mizuho analyst Jim Antos wrote in a note.

Barclays declined 2.8 percent to 249.5 pence and HSBC Holdings Plc slipped 1.9 percent to 683.2 pence, the largest drop since August. A gauge of banks was the third-worst performer among 19 industry groups in the Stoxx Europe 600 Index.

Flybe plunged 11 percent to 93 pence as Rosedale Aviation Holdings Ltd. sold its 48.1 percent stake to existing and new shareholders in a deal valued at 37 million pounds, based on Flybe’s closing price yesterday.

Sainsbury advanced 3 percent to 410.7 pence, the biggest gain since March 2012, after saying first-half underlying pretax profit rose 7 percent to 400 million pounds. That beat the 394 million-pound median projection of analysts surveyed by Bloomberg.

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