LONDON MARKET MIDDAY: Bank of England sticks to half-point rate hikes

The pound was steady on Thursday at midday, while London stock prices remained in the red, after the UK central bank kept its pace of interest rate hikes unchanged, deciding against moving faster.

The Bank of England raised UK interest rates by half a percentage point to 2.25%. Three members of the Monetary Policy Committee voted in the minority to raise the key bank rate by a more-aggressive three-quarters of a percentage point.

The BoE explained that it expects peak consumer price index inflation to be lower than previously thought at just under 11%, due to the UK government’s recently announced energy price measures.

Sterling was quoted at $1.1314 midday Thursday, down against $1.1336 at the London equities close on Wednesday.

The FTSE 100 index was down 8.52 points, or 0.1%, at 7,229.12 at midday on Thursday. The mid-cap FTSE 250 index was down 212.11 points, or 1.1%, at 18,502.56. The AIM All-Share index was down 5.34 points, or 0.6% at 850.00.

The Cboe UK 100 index was down 0.1% at 721.89. The Cboe 250 was down 1.1% at 15,851.04, and the Cboe Small Companies down 0.2% at 12,647.73.

In the FTSE 100, JD Sports fell 6.1%. The sportswear retailer was the worst blue-chip performer at midday after reporting a rise in interim revenue but a drop in profit.

In the six months to July 30, pretax profit dropped to £298.3 million from £364.6 million. JD Sports explained this was due to the previous year experiencing a one-off benefit in the US from government stimulus.

Revenue rose by 14% to £4.42 billion from £3.89 billion a year previous.

JD Sports Chair Andrew Higginson said the results were at the ‘top end’ of the company’s expectations, touting the firm’s ‘strength’ of consumer engagement.

Looking ahead, the company expects its pretax profit for the year as a whole to be in line with the record performance for the year that ended January 29.

In the FTSE 250, Playtech was down 6.4% after posting a significant decrease in interim profit.

The Isle of Man-based gambling software developer said pretax profit had dropped 63% to €103.7 million in the six months to June 30 from €278.1 million a year before.

This fall was mainly due to the €299.9 million of unrealised fair value gains on financial assets recognised in the prior period, Playtech said.

Playtech’s revenue, however, increased by 73% to €792.3 million from €457.4 million. This increase was driven by strong growth within regulated business-to-business markets and Snaitech, Playtech’s Italian business.

Royal Mail was 3.2% lower. The postal service and courier company said that after five months of talks, it has not been able to reach an agreement with the Communication Workers Union, the main trade union for the telecommunications and postal delivery industries in the UK.

‘The CWU has blocked any meaningful discussion on the change agenda the company has set out, and has not put forward any viable alternatives that will fund further pay increases,’ Royal Mail said.

Given the lack of progress, Royal Mail explained that it has taken two steps to move forward with the CWU, proposing that talks should be taken to the Advisory, Conciliation & Arbitration Service and saying it wants to modernise the ways of working with the CWU.

Royal Mail added that it made a loss of £92 million in the first quarter, and said it needs to ‘adapt much faster to adapt to changing customer demands in a highly competitive market’.

PZ Cussons climbed 1.7% on a ‘resilient’ performance in the most recent financial year, with dips in both revenue and profit amid a ‘challenging’ market backdrop.

For the year ended May 31, the Manchester-based manufacturer of personal care brands such as Imperial Leather and St Tropez said revenue slipped by 1.7% to £592.8 million from £603.3 million the year before, as ‘adverse FX movements and net disposals more than offset life-for-like growth’.

PZ Cussons’ pretax profit declined 8.7% to £65.3 million from £71.5 million due to the ‘reduction in revenue and a brand impairment’, the firm explained.

Nonetheless, PZ Cussons raised its annual dividend by just over 5%.

Elsewhere in London, Biome Technologies plunged 49% as the bioplastics and radio frequency technology firm reported that logistical difficulties were taking their toll on the company’s future revenue.

Biome reported a pretax loss of £667,000 in the six months to June 30, narrowed slightly from £790,000 the year before. Revenue declined 7.7% to £2.4 million from £2.6 million the year before.

Looking forward, however, Biome said revenue for 2022 and 2023 will now be ‘substantially below current market expectations’ due to supply chain problems and concerns over consumer demand.

In mainland Europe, the CAC 40 index in Paris was down 0.8%, while the DAX 40 in Frankfurt was down 0.6%.

The euro traded at $0.9874, flat against $0.9879 late Wednesday. Against the yen, the dollar was quoted at JP¥142.74, down against JP¥144.13.

Japan’s finance ministry said it intervened in the currency market to bolster the yen, which has plummeted against the dollar in recent months on the widening policy gap between the US and Japanese central banks.

It was the first government intervention to prop up the currency since 1998 and came after the dollar surged to nearly JP¥146 earlier in the day.

The yen has been weakening against the dollar for months, but sank further on Thursday after the US Federal Reserve again hiked rates to tame inflation, while the Bank of Japan left its ultra-loose monetary policy in place.

In a statement, the Japanese central bank said it was ‘aiming to achieve the price stability target of two percent, as long as it is necessary’.

The Federal Reserve, meanwhile, ‘will keep at it’ until inflation is well and truly tackled, Chair Jerome Powell said after a third successive 75 basis point rate hike by the US central bank.

An executive board member of the European Central Bank also expressed the central bank’s willingness to raise interest rates further in the fight against record-high inflation.

‘With the Fed turning ever more hawkish and the BoJ still printing money, it looks like the Japanese government wanted to stop a quick run to 150,’ commented Dutch bank ING. ‘Japanese authorities could well be doing battle with the FX market for the next six to nine months as the dollar stays strong.’

Brent oil was trading at $90.24 a barrel, up slightly from $89.80 late Wednesday. Gold was quoted at $1,668.30 an ounce, slightly higher than $1,667.36 on Wednesday.

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