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Stronger Pound Weighs on FTSE 100 after BoE Rate Hike

  • BoE hike rates to curb inflation
  • Compass group tops blue-chip index on upbeat earnings
  • FTSE 100 down 0.7%, FTSE 250 off 1.3%

Feb 3 (Reuters) - London's FTSE 100 erased early gains to end lower on Thursday, as the pound jumped after the Bank of England (BoE) announced a second consecutive interest rate hike to curb inflation.

The FTSE 100 index dipped 0.7%, as a sharp rise in sterling hurt shares of internationally-focused companies. The FTSE mid-cap index fell 1.3%.

The BoE raised interest rates by 25 basis points (bps) to 0.5%, with four out of nine policymakers wanting a bigger increase to contain rampant price pressures.

"Inflation is likely to remain elevated in the coming months – particularly with another energy price cap hike coming in April...," Jai Malhi, global market strategist at J.P. Morgan Asset Management, said in a note.

"This calls into question how much the Bank has to tighten in order to cool inflation down .... We think the central bank can afford to be slightly more patient than the market is pricing," Malhi stated.

The BoE said consumer price inflation - which stood at 5.4% in December - now looked set to peak at around 7.25% in April, which would be the highest since the recession-ravaged early-1990s and miles off its 2% target.

"Four members voted for a 50 bps hike, which is a hawkish turn markets did not expect," said Anna Stupnytska, a global macro economist at Fidelity International.

"As the Fed joins the BoE in the hiking cycle later this year, market vulnerabilities will likely come in sharp focus as the policy punchbowl starts getting withdrawn," Stupnytska added.

The banking sub-sector climbed 0.3%, tracking two-year yields that jumped back to their highest level since May 2011 following the BoE decision.

Strong quarterly earnings from companies in the energy and consumer sector helped limit some losses.

Shares in Compass group rose 4.0% to the top of the FTSE 100 after the catering giant said its first-quarter revenue had reached 97% of pre-pandemic levels. 

Shell was up 1.4% after it boosted its dividend and share repurchases, and its fourth-quarter profit soared to $6.4 billion. 

Gambling software maker Playtech's shares jumped 8.3% after TTB Partners sought its release from takeover rules that prevent the shareholder from making a fresh offer for the British company after a deal with Aristocrat collapsed.

Reporting by Tanvi Mehta, Amal S and Medha Singh in Bengaluru Editing by Uttaresh.V and Mark Potter

Source: Reuters

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