FTSE 100 extends gains as BoE hikes rate but outlook clouded

By Amal S

(Reuters) -UK’s blue-chip FTSE 100 extended gains on Thursday, as a weaker pound lifted shares in dollar earners after the Bank of England raised interest rates as expected and struck a less hawkish tone on further hikes.

The FTSE 100 climbed 0.5% in afternoon trade with shares in global companies including Diageo and British American Tobacco rising 2.7% and 0.7% respectively. The pound fell 0.3% versus the dollar.

The domestically focused mid-cap index shed 0.2%.

The BoE raised Bank Rate to 0.75% from 0.5%, its third consecutive hike since the COVID-19 pandemic, to rein in fast-rising inflation, but softened its language on the need for more increases.

Policymakers pushed back against investors’ bets that Bank Rate will rise sharply to around 2% by the end of this year.

“Clearly the deteriorating growth outlook is becoming more of a concern to the MPC, and the easing off on the monetary tightening accelerator evidences this,” said Stuart Cole, head macro economist at Equiti Capital.

“Alongside this, the MPC may also be recognising that current inflationary pressures are largely supply-side driven and as such there is little the MPC can do to fight them.”

The U.S. Federal Reserve on Wednesday raised its borrowing costs for the first time since 2018.

The BoE said inflation was set to reach around 8% in April, almost a percentage point higher than it forecast last month, and warned it could rise further later in the year.

Oil majors Shell and BP gained 1.6% and 2.1%, respectively, tracking a rally in crude prices.[O/R]

Meanwhile, banks fell 0.3%, as investors saw the central bank’s stance on further monetary tightening to be less hawkish than expected.

Among individual stocks, Ocado Group fell 7.3% fell to the bottom of FTSE after Ocado Retail, its joint venture Marks & Spencer cut its annual sales forecast.

(Reporting by Amal S in Bengaluru; Editing by Anil D’Silva and Vinay Dwivedi)