U.K. Stocks Little Changed Amid Interest-Rate SpeculationInyoung Hwang
U.K. stocks were little changed as a surge in the pound to a one-year high against the euro signaled investors expect interest rates to rise even after Bank of England’s assurance to keep its benchmark rate low.
Royal Bank of Scotland Group Plc dropped 3.1 percent after UBS AG advised investors to sell the shares. Sage Group Plc surged to a 13-year high after the U.K.’s biggest software maker said its first-quarter performance matched its expectations. Admiral Group Plc rose 3.2 percent after Numis Securities Ltd. upgraded the motor insurer to buy.
The FTSE 100 Index fell 7.93 points, or 0.1 percent, to 6,826.33 at the close in London. The gauge has gained 1.1 percent this year as the World Bank and the International Monetary Fund raised their forecasts for global growth. The broader FTSE All-Share Index also declined 0.1 percent today, while Ireland’s ISEQ Index added 0.2 percent.
“It would appear that the BOE will have to raise rates before the European Central Bank and even the Federal Reserve, which would boost sterling,” Stewart Richardson, who helps oversee about $100 million as chief investment officer at RMG Wealth Management LLP in London, said by telephone. “In an environment with potentially rising interest rates and a stronger currency, U.K. equities will underperform.”
The pound rose versus all but one of its 16 major peers, jumping to the strongest level in a year against the euro. Sterling increased 0.6 percent to 81.78 pence per euros, the strongest since Jan. 10, 2013. The U.K. currency added 0.6 percent to $1.6576.
Data today showed U.K. unemployment fell by more than economists forecast. The jobless rate measured by International Labour Organization methods slid to 7.1 percent in the three months through November from 7.4 percent in the quarter through October, according to the Office for National Statistics. The median economist estimate called for a drop to 7.3 percent.
“There is the clear threat that the 7 percent threshold is breached in the next month or two,” James Knightley, the London-based senior economist at ING Groep NV, wrote. “The probability of an interest rate rise in 2014 is increasing.”
Still, Bank of England policy makers said they saw no need to raise rates soon. Minutes from the Monetary Policy Committee’s last meeting showed today members cited lower inflation, subdued cost pressures and inadequate productivity gains as reasons why they won’t consider raising the bank rate even if the jobless rate fell to 7 percent.
The BOE left its policy unchanged after its meeting Jan. 8-9, keeping the benchmark rate at a record-low 0.5 percent and leaving its target for the stock of asset purchases at 375 billion pounds ($621 billion).
RBS lost 3.1 percent to 348 pence. The stock price already reflects operational improvements the lender will make over the next 18 months, UBS analyst John-Paul Crutchley wrote. He lowered his rating to sell from neutral and cut the 12-month price estimate by 14 percent to 300 pence.
Wolseley Plc dropped 1.1 percent to 3,478 pence. Exane BNP Paribas downgraded the world’s biggest distributor of plumbing and heating products to underperform, a rating similar to sell, from neutral.
Carclo Plc tumbled 32 percent to 181 pence, a three-year low. The U.K. maker of specialist wire and plastic products said worse-than-expected sales in its conductive inkjet technology unit will reduce second-half profits.
Sage Group gained 3.3 percent to 426.9 pence. The software-publishing company is on track to deliver on its target of 6 percent revenue growth in 2015, Chief Executive Officer Guy Berruyer said in a statement today.
Admiral rose 3.2 percent to 1,460 pence, its highest price since August 2011. Numis raised the Cardiff, England-based company to buy from add, saying it is well positioned to increase its market share given that its profit margin is higher than those of most of its peers.
JD Wetherspoon Plc increased 2.5 percent to 809 pence. The pub owner said comparable sales so far in the second quarter have risen 6.7 percent. That compared with the 4 percent increase estimated by analysts.