FTSE indexes gain after BoE holds rates steady, pauses gilt sales

FTSE Indexes Climb After BoE Holds Rates and Pauses Gilt Sales

Market Reaction to Bank of England Decisions

Sept 17 (Reuters) - The main UK indexes rose to their highest in over a week on Thursday after the Bank of England kept interest rates unchanged as expected, and said it would halt sales of long-dated gilts entirely.

The blue-chip FTSE 100 index closed 1.2% higher at 10,816.14 points, while the midcap FTSE 250 climbed 1.2% to 24,352.14 points. 

Bank of England Policy Update

• The BoE policymakers voted 6-3 to keep interest rates at 3.75%, with Governor Andrew Bailey warning explicitly that prolonged conflict in the Middle East may require tighter policy.

Inflation and Future Rate Hikes

• "Going forward, with inflationary concerns intensifying, the MPC will be getting increasingly uncomfortable, and no doubt hikes will be coming, most likely as soon as November", Ed Hutchings, head of rates at Aviva Investors, said.

• Traders have fully priced in at least one quarter-point rate hike by the BoE this year, with the odds of a second hike rising, per data compiled by LSEG.

Sector and Market Performance

Banking Sector Gains

• Rate-sensitive banks rose 1.6%, with HSBC and Standard Chartered leading with gains of 2% and 2.2% respectively.

Gilt Market Movements

• The central bank also paused UK government bond sales for six months and halted long-dated gilt sales entirely, days after a global bond selloff had pushed 30-year borrowing costs to their highest since 1998 at 5.96%.

• Gilts rallied sharply as yields fell on Thursday, with the 30-year gilt yield falling 11.8 basis points to 5.7414%, its lowest level in over two weeks.

Global Central Bank Actions

US Federal Reserve Rate Hike

• The US Federal Reserve raised interest rates by 25 basis points on Wednesday and indicated one more hike in the coming months, as Chair Kevin Warsh joined a unanimous vote in favour of the move.

Impact of Global Events

• The decision follows a surge in oil prices in recent months, driven by the war in the Middle East that has stoked inflation and prompted policymakers worldwide to reassess monetary policy.

Notable Stock Movers

AstraZeneca Investment in China

• Among single stocks, AstraZeneca rose around 2.4% after unveiling an investment of nearly 200 million yuan ($29.81 million) to upgrade its production and supply base in Wuxi, China, the company's Chinese unit said in a statement.

Bytes Technology's Strong Performance

• Among mid-caps, IT services provider Bytes Technology jumped 12% after the company reported a stronger-than-expected first-half performance and raised its full-year gross profit growth forecast.

(Reproting by Anand Gopal in Bengaluru; Editing by Janane Venkatraman, Vijay Kishore and Elaine Hardcastle)