FTSE 100 slips after BoE cuts rate as expected but flags higher inflation

UK’s FTSE 100 edged lower on Thursday after the Bank of England (BoE) cut interest rates as expected but projected higher inflation and growth following the new government’s first budget.

By 1219 GMT, the FTSE 100 slipped 0.1 per cent, with the export-oriented index weighed down by a 0.4 per cent rise in the pound after the rate decision.

Sterling climbed 0.4 per cent against the dollar after the Monetary Policy Committee voted 8-1 to cut rates to 4.75 per cent from 5.0 per cent.

The British central bank predicted that finance minister Rachel Reeves’ budget last week -- which includes significant increases in tax, spending, and borrowing -- would likely add just under half a percentage point to the inflation rate at its peak in over two year, causing inflation to take a year longer to return sustainably to its 2.0 per cent target.

Additionally, the BoE forecast that the budget would boost Britain’s economy by about 0.75 per cent next year.“The Chancellor’s decision to loosen fiscal policy is expected to provide a boost to demand in the medium term, though the MPC remains wary,” said Jeremy Batstone-Carr, European strategist at Raymond James Investment Services.

“A cautious approach going forward also nods in response to the results of the US presidential election this week, the impact of which on future trade policy and the global economy are yet to be established.”

UK stocks fluctuated on Wednesday following Republican Donald Trump’s US presidential election victory, with investors concerned about potential higher tariffs impacting the European economy.

Among individual stocks, BT fell 6.7 per cent after Britain’s biggest broadband and mobile company reduced its full-year revenue forecast from broadly flat to down 1-2 per cent, citing weaker demand in corporate and public sectors.

Rolls-Royce dropped 4.0 per cent after it stuck to guidance for annual profit growth of at least 30 per cent this year.John Wood Group plummeted 48 per cent following an 8.0 per cent decline in its third-quarter order book.