Sterling remained steady and shares were firm midday Thursday, after the Bank of England’s policymakers faced down the conundrum of stubborn inflation at a time of weakening economic growth in the UK, voting for a historically large interest rate hike by a surprisingly large margin.

As had been increasingly expected, the BoE’s Monetary Policy Committee voted for half-percentage-point rate increase, taking the bank rate to 1.75%. It was the first 50-basis-point rise since 1995. The MPC voted 8-1 in favour of the the 50-point hike, with the sole dissenter being Silvana Tenreyo, who wanted a smaller 25-point rise.

The BoE tightened credit conditions to combat inflation, despite saying it expects the UK to enter recession in the fourth quarter of this year.

Sterling fetched $1.2127 midday Thursday in London, up from $1.2110 late Wednesday, though down from $1.2188 just prior.

‘The Bank of England has clearly decided that now is the right time to bring out more firepower and raise rates by 0.5% for the first time since 1995,’ commented Paul Craig at Quilter Investors.

‘It has clearly taken note of what the Federal Reserve is doing in the US and feels it could be running out of time to grapple inflation and get it under control.’

The FTSE 100 was up 21.64 points, 0.3%, at 7,467.32 midday Thursday. Pre-central bank nerves and a trio of poorly received updates from Rolls-Royce, Hikma and Mondi hit the index.

The FTSE 250 index had a more convincing morning, bolstered by promising corporate updates. The midcap benchmark was up 114.20 points, 0.6%, at 20,133.04. The AIM All-Share index was up 2.39 points, or 0.3%, at 922.70.

The Cboe UK 100 index was up 0.2% at 744.59. The Cboe 250 was up 1.0% at 17,602.95. The Cboe Small Companies was up 0.2% at 13,985.43.

In Paris, the CAC 40 stock index jumped 1.0%, while in Frankfurt, the DAX 40 was 1.4% higher.

The euro stood at $1.0195 on Thursday afternoon, up from $1.0125 at the European equities close on Wednesday. Against the yen, the dollar was trading at JP¥134.15, down slightly from JP¥134.30.

The weaker dollar was a tailwind for gold. The precious metal stood at $1,780.89 an ounce midday Thursday, up strongly from $1,757.20 late Wednesday.

Brent oil was quoted at $97.27 a barrel, down from $98.50 at the London equities close on Wednesday. Oil prices came under pressure as US data showed weekly crude stockpiles increased.

The latest US Energy Information Administration figures showed weekly oil stockpiles increased by 4.5 million barrels in the seven days to July 29. They had been expected to decline by more than 600,000 barrels, according to FXStreet-cited consensus.

Hitting the FTSE 100, Rolls-Royce tumbled 9.5% after a wild swing to an interim loss.

For the half-year ended June 30, the engineering group reported a pretax loss of £1.75 billion, swinging from a profit of £114 million a year before. The company said the loss was due to £2.1 billion of net financing costs.

Revenue rose 8.5% to £5.60 billion from £5.15 billion a year earlier.

‘For a one-time champion of British engineering, the company is at a pretty low ebb. Today’s results demonstrate the size of the task facing the newly appointed chief executive, Tufan Erginbilgic,’ AJ Bell analyst Russ Mould commented.

‘If even a well-regarded figure like Warren East, who will hand over to Erginbilgic at the beginning of next year, can’t fix the business, then what hope is there for anyone else?’

Hikma was the second-weakest blue-chip performer, sliding 7.1%.

Hikma said revenue in the first half of 2022 inched down 0.2% year-on-year to $1.21 billion from $1.22 billion. Pretax profit fell by a third to $215 million from $319 million.

Worse, it cut its forecast for its Generics arm. It now guides for annual revenue there between $650 million and $675 million, down from the previous $710 million to $750 million range. The unit’s core operating margin will land between 15% and 16%, down from 20%.

Hikma blamed this on the ‘persistent challenges of the US generics market’.

Also hurting the FTSE 100, Mondi gave back 4.7%. The paper and packaging firm reported a strong rise in revenue in the first half, but warned inflation could hurt its costs in the second half of 2022.

In the six months to June 30, pretax profit surged to €933 million from €354 million, as revenue jumped 37% to €4.51 billion from €3.28 billion.

Looking ahead, however, Chief Executive Andrew King said: ‘Pricing remains strong going into the second half, although we do anticipate continued inflationary pressures on our cost base and ongoing supply chain challenges.’

Boosting the FTSE 250s, ConvaTec jumped 10%, as it reported weaker first-half profit but backed annual guidance as revenue trended upward.

In the first half of the year, the Reading, England-based medical products and technologies company’s pretax profit fell 59% to $46.1 million from $112.1 million a year before. This was as its gross margin fell to 53.1% from 55.1%, and the operating margin dropped to 8.3% from 13.4%.

Revenue edged up by 3.6% to $1.05 billion from $1.01 billion.

ConvaTec said it is on track to report organic revenue growth of 4.0% to 5.5% for the full year.

Investment trust Pantheon International added 4.3%. Its net asset value per share amounted to 451.63 pence at its May 31 year-end, up 31% year-on-year.

That NAV increased compared favourably to just an 8.3% total return for the FTSE All-Share index and a 7.8% return for the MSCI World index.

Pantheon invests in a wide-range of listed and unlisted firms, with its holdings including Oslo-based software company Visma and onshore Caribbean, Hispanic American and European-focused natural resources company Ascent Resources, a London listing.

Adding some M&A impetus to London, Mediclinic rose 3.3% to 499.80p, giving it a market cap of £3.69 billion.

It backed a consortium’s takeover offer, which values the hospital chain’s share capital at £3.7 billion. On an enterprise value basis, including debt, it values it at £6.1 billion.

SAS Shipping Agencies Services and Remgro will pay 504p per Mediclinic share. The consortium made the latest proposal in July.

Mediclinic at the time said it would be ‘minded’ to recommend a bid of that sum to its shareholders. Mediclinic in July said it had received three further takeover offers from the consortium, after it rejected the first offer in June.

Go-Ahead rose 2.5% to 1,538.00p. The board backed a slightly improved takeover offer from a consortium consisting of Kinetic Holding and Globalvia Inversiones. Go-Ahead has a market value of £664.1 million.

Kinetic and Globalvia agreed to raise the takeover offer for Go-Ahead shares to 1,550p per share, comprising of 1,450p in cash, plus a 100p special dividend.

In June, Newcastle, England-based Go-Ahead agreed to a takeover offer from the consortium at 1,500 pence per share, valuing the company at £647.7 million.

Stocks in New York were called higher ahead of the latest batch of jobless claims data at 1330 BST, before the monthly US jobs report on Friday.

The Dow Jones Industrial Average is called up 0.2%, the S&P 500 up 0.3% and the Nasdaq Composite up 0.5%.

The economic events calendar on Thursday has a construction PMI reading from the UK at 0930 BST.

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Issue Date: 04 Aug 2022