The FTSE 100 fell in London on Thursday, while the pound climbed, after the Bank of England lowered interest rates in a tight vote which saw hopes for further cuts this year pared.
The quarter point cut taking the bank rate to 4.00% from 4.25% was widely expected.
But the split among Monetary Policy Committee members proved surprising, requiring an unprecedented second round of voting.
Five members of the nine-strong MPC, including Bank of England governor Andrew Bailey, voted for the 25 basis points reduction. Mr Bailey was joined by Sarah Breeden, Swati Dhingra, Dave Ramsden and Alan Taylor.
Four MPC members – Megan Greene, Clare Lombardelli, Catherine Mann and Huw Pill – voted to keep rates on hold.
The Bank said Mr Taylor would have preferred to reduce bank rate by a heftier 50 basis points but in a second round of voting eventually backed the quarter point cut.
In response, equities extended early losses as markets repriced expectations for rate cuts in the rest of 2025.
The FTSE 100 index closed down 63.54 points, 0.7%, at 9,100.77. The FTSE 250 ended 12.22 points higher, 0.1%, at 21,938.10 while the AIM All-Share finished down 0.84 of a point, 0.1%, at 763.51.
Matthew Ryan at Ebury said the “razor-thin” 5-4 vote has “turned a few heads”.
“Sterling has posted modest gains, as investors slash bets in favour of additional cuts, with a November rate reduction now less than 50% priced in by swap markets,” he said.
Andrew Wishart at Berenberg felt the “exceptionally tight vote and higher inflation forecast show that the central bank is preparing to pause its interest rate cutting cycle.”
The Bank revised up its forecast for CPI inflation – it now expects inflation to peak at 4.0% in September, up from 3.7% previously, and decline to 2.5% by the end of 2026, previously 2.1%.
The Bank did, however, also revise up its forecast for economic growth this year to 1.25% from 1.0% before.
It estimates that GDP growth was 0.1% in the second quarter, with growth expected to pick up to 0.3% in the third quarter.
“It was a finely balanced decision,” Mr Bailey said.
“Interest rates are still on a downward path but any future rate cuts will need to be made gradually and carefully,” he added.
Deutsche Bank’s Sanjay Raja said the dynamics within the MPC are shifting.
“While the path of bank rate remains down, in our view, the next few months mark a murkier path on the scale and pace of tightening,” he added.
The pound rose to 1.3412 dollars late on Thursday afternoon in London, compared with 1.3343 dollars at the equities close on Wednesday. The euro traded at 1.1631 dollars, lower against 1.1639 dollars. Against the yen, the dollar was trading higher at 147.44 yen compared with 147.34 yen.
In Europe, the CAC 40 in Paris rose 1.0%, while the Dax 40 in Frankfurt climbed 1.1%.
In New York, the Dow Jones Industrial Average was down 0.5%, the S&P 500 was 0.1% higher, and the Nasdaq Composite advanced 0.6%.
The yield on the US 10-year Treasury was at 4.23%, widened from 4.22%. The yield on the US 30-year Treasury was 4.80%, trimmed from 4.81%.
Also weighing on the FTSE 100, a number of stocks trading ex-dividend including BT, Reckitt Benckiser, NatWest, Barclays and AstraZeneca.
Defence stocks ebbed after the Kremlin said that a summit between US President Donald Trump and Russian counterpart Vladimir Putin on Ukraine was set for the “coming days”.
Mr Trump said on Wednesday that he was likely to meet Mr Putin face-to-face “very soon”.
On the FTSE 100, Babcock International fell 5.5% while BAE Systems dropped 5.0%.
Also in the red, Hikma Pharmaceuticals, down 6.5%, as it said it continues to expect revenue and profit growth in 2025, despite core operating profit declining in the first half.
Hikma said the decline in core profit was because of a change in distribution of profit across the year, with gross profit for Hikma Rx and Branded having been strongly first half weighted in 2024. It said the decline also reflected changes in product and geographic mix in injectables.
Faring better, InterContinental Hotels Group rose 6.2% as it backed annual guidance, despite a key sales metric slowing in the second quarter reflecting economic uncertainty.
“While some shorter term macro-economic uncertainties remain, many are subsiding,” chief executive Elie Maalouf said.
Holiday Inn owner IHG said pre-tax profit rose 34% to 633 million dollars in the six months to June 30 from 472 million dollars a year prior.
First half revenue per available room rose 1.8% with Americas up 1.4%, Europe, Middle East, Africa and Asia up 4.1% but Greater China down 3.2%. The average daily rate rose 1.4% and occupancy improved by 0.3 percentage points.
RevPAR growth slowed in the second quarter to 0.3% from 3.3% in the first three months of 2025.
On the FTSE 250, Harbour Energy jumped 8.3% after declaring a 100 million-dollar share buyback and raising its interim dividend, as it lifted its guidance for oil production and free cash flow.
But Morgan Advanced Materials fell 13% as it warned full-year profit would be at the bottom end of market expectations reflecting weak and challenging markets.
The Windsor-based manufacturer of carbon and ceramic materials left full-year revenue guidance unchanged, but now expects adjusted operating profit to be around the bottom of the £115.6 million to £126.3 million consensus range.
This is a result of “weak” market conditions, mix effects and foreign exchange headwinds, and would be down 10% at worst from £128.4 million in 2024.
Brent oil was quoted lower at 66.48 dollars a barrel in London on Thursday, down from 68.31 dollars late on Wednesday.
Gold firmed to 3,387.20 dollars an ounce against 3,375.48 dollars.
The biggest risers on the FTSE 100 were Intercontinental Hotels Group, up 502.0 pence at 9,182.0p, Coca-Cola HBC, up 152.0p at 3,804.0p, Rentokil Initial, up 10.8p at 372.1p, Halma, up 84.0p at 3,316.0p, and Coca-Cola Europacific Partners, up 160.0p at 6,870.0p.
The biggest fallers on the FTSE 100 were Hikma Pharmaceuticals, down 134.0p at 1,750.0p, Babcock International, down 58.5p at 947.5p, BAE Systems, down 99.5p at 1,758.5p, St James’s Place, down 50.0p at 1,300.0p and BT, down 6.4p at 205.7p.
Friday’s local corporate calendar sees half-year results from building materials company Kingspan and Georgia-based lender TBC Bank Group.
The global economic calendar on Friday has unemployment figures in Canada and France.
Contributed by Alliance News
