The FTSE 100 slipped on Thursday after the Bank of England hiked rates and set out their revised forecast for the UK economy.
As expected, the Bank of England raised rates by 0.25% to 4.5%. However, the market-moving elements of the bank’s instalment were their UK economic forecasts and press conference. The prospect of additional rate hikes this year curtailed demand for UK risk assets.
The FTSE 100 was down 0.34% at the time of writing during the Bank of England’s press conference.
The BoE now expects the UK economy will avoid a recession but still sees persistently high inflation levels through the rest of 2023. The bank sees sharp drops in inflation this year, but with inflation currently in double digits, inflation will still be significantly higher than their 2% target.
“Sticky inflation means the Bank of England has once again turned to its weapon of choice in hope of stamping out the inflationary pressures the economy is facing,” said Rachel Winter, Partner at Killik & Co.
Winter continued to explain markets are predicting further interest rate hikes later this year – a contrast to the current trajectory for rates in the US.
“While the Federal Reserve recently indicated that it was ready to hit the pause button on rate hikes in the US, markets in the UK are currently pricing in a peak of 4.85% in September.”
GBP/USD fell despite the bank predicting 0.25% growth in 2023 – and will avoid a recession. In February, the bank had predicted a 0.5% contraction in 2023.
FTSE 100 movers
Airtel Africa was the FTSE 100 top faller after reporting 2022 full-year results. Investors were disappointed with falling earnings due to currency fluctuations. Airtel Africa shares were down 7% at the time of writing.
Rolls Royce slipped as the defence and aviation firm kept guidance for the year unchanged. Roll Royce shares were down 5% on Thursday but are still up 58% on the year.
Miners were under pressure as concerns about Chinese demand for natural resources sapped interest in the sector. Rio Tinto, Anglo American and Glencore were down between 2%-3%.
ITV
Former FTSE 100 constituent ITV’s hopes of being promoted back to London’s leading index were dealt a blow after poor trading in Q1.
ITV was down 4.5% after its Q1 2023 trading update was released. The media group said sales faltered in the period, primarily due to lower advertising revenue.
“TV advertising faces both a structural challenge, as the audience for linear television declines, and a cyclical challenge as companies trim their advertising spend thanks to an uncertain economic outlook,” said Russ Mould, investment director at AJ Bell.
“This was reflected in free-to-air broadcaster ITV’s first quarter trading update which, not unexpectedly, showed a big decline in advertising revenue and signalled a weak showing on this front in the current quarter too.
“Advertising spend on its digital platforms is proving more resilient but not sufficiently so that it can make up for the drop off elsewhere.”
ITV’s shares need to rally by around a third to be in contention for promotion to the FTSE 100.