Yahoo Finance FTSE 100 Live: ‘Mortgage holders need to prepare for more pain ahead’ — Bank of England interest rates hit 5%
An under-fire Bank of England is today hiked interest rates for the 13th meeting in a row, by half a point to 5%.
A 0.25% increase had been expected, but Bank policymakers surprised the market with a 0.5% rise to 5% after yesterday’s shock inflation reading of 8.7% included a 31-year high for core prices of 7.1%.
The decision came with stock markets already under pressure after Federal Reserve chair Jerome Powell yesterday signalled more rate hikes to come in the United States.
FTSE 100 Live Thursday
Mortgage costs rise as BoE hikes again
Ocado shares jump on takeover talk
Whitbread hails Premier Inn upturn
Boohoo still on course to return to profit as 30% vote against bosses’ pay
Thursday 22 June 2023 17:14 , Daniel O'Boyle
In a post-market trading update following its AGM, online fast fashion brand Boohoo said it is still on course to bounce back to profitability this year.
“The Group's execution of its Back to growth strategy continues apace and guidance remains unchanged from that issued previously in May, with an expectation to return to profitable growth in the second half of the financial year as a result of the anticipated benefits from investments being made across price, product and proposition,” the firm said. “This is expected to improve Adjusted EBITDA year on year and the Group continues to focus on maintaining its strong balance sheet.”
At Boohoo’s AGM, shareholders representing a third of voting rights rejected its remuneration report.
Mike Ashley’s Frasers Group revealed it bought 5% stake in Boohoo earlier this week.
Key market data as FTSE closes at 7502
Thursday 22 June 2023 16:52 , Daniel O'Boyle
The FTSE closed at 7502 today, down 0.8%, on a day in which the Bank of England raised interest rates by half a percentage point.
West End Final: Is the Bank overreacting or underreacting?
Thursday 22 June 2023 16:21
“Far be it for me to tell the Monetary Policy Committee (MPC) how to behave,” Jack Kessler writes. “The Bank of England was granted operational independence from government (and newsletter writers, for that matter) for good reason.
“But today’s half-point rise – ‘shock rise’ in journalese – taking rates to their highest level since October 2008, raises a question: is this a reaction to the data, or an overreaction to the barrage of criticism the Bank has faced from all sides?
“In normal times, rates rise or fall by 25 basis points. A half-point rise, therefore, sends a message that the MPC is serious. And it has good reason.”
Read today’s West End Final newsletter here
Morrisons posts sales rise but inflation ‘disappointingly and stubbornly high’
Thursday 22 June 2023 15:51 , Daniel O'Boyle
The boss of Morrisons has cautioned that shoppers still face “disappointingly and stubbornly high” inflation as the supermarket saw sales tick higher.
The private equity-owned retailer reported that group like-for-like sales, excluding fuel and VAT, were up 1% over the 13 weeks to April 30.
However, total group revenues were down 0.9% to £4.5 billion for the quarter due to a decline in fuel sales.
US shares fall further
Thursday 22 June 2023 15:22 , Daniel O'Boyle
Shares in Wall Street firms continued to fall today after declines yesterday as Jerome Powell signalled more fed rate hikes are on the way.
Amazon, which has been linked with a takeover of FTSE 100 delivery firm Ocado, was among the exceptions, gaining 2.4%.
Take a look at all the key market data.
“Mortgage holders need to prepare for more pain ahead"
Thursday 22 June 2023 14:47 , Daniel O'Boyle
Garry White, chief investment commentator at Charles Stanley, says: “Mortgage holders need to prepare for more pain ahead, as persistently high inflation means even more interest rate rises are likely in the coming months. Markets are now pricing in interest rates hitting 6% by the end of the year, though this could be an overly hawkish stance. Rising mortgage rates, coupled with continuing price rises in goods and services, will act as a sharp brake on the UK economy, as households rein in spending.
“The impact of the mortgage squeeze on consumer incomes will lead to the underperformance of UK growth compared to the more favourable GDP growth forecasts that have emerged."
Big surge in rent prices to come?
Thursday 22 June 2023 14:44 , Daniel O'Boyle
Polly Ogden Duffy, managing director at John D Wood & Co predicts a major increase in rent prices as the latest interest rate hike prompts more landlords to leave the market.
“As interest rates continue to rise and mortgage rates comes to an end, we are tipping the ballasts where we are seeing more and more landlords having to fund their buy-to-lets to break even,” she said. “If these landlords can sell, chances are they will sell and that in turn will drive rents up due to less supply.
“It is hard to find many incentives to become a landlord with a mortgage in this environment.”
Church of England to divest from fossil fuel companies
Thursday 22 June 2023 14:42 , Daniel O'Boyle
The Church of England is pulling its investment from fossil fuel companies because they are failing to align with the Paris Agreement, the Archbishop of Canterbury has said.
By the end of the year, the Church said it will have removed its £10.3 billion endowment fund from all oil and gas companies unless they are in genuine alignment with limiting global temperatures to 1.5C above pre-industrial levels.
BP, Ecopetrol, Eni, Equinor, ExxonMobil, Occidental Petroleum, Pemex, Repsol, Sasol, Shell, and Total will be excluded from the Church’s investments, joining 20 others that were excluded in 2021.
Mortgage advisor: ‘Bank of England governor has lost his mind'
Thursday 22 June 2023 13:12 , Daniel O'Boyle
Samuel Mather-Holgate of mortgage advisory firm Mather & Murray Financial was deeply critical of the Bank of England’s decision.
“The Bank of England governor has lost his mind,” he said. “This rate rise will tip the UK into a severe, protracted recession.
“These rate rises have battered homeowners and renters, as mortgage rates push up rents. It makes no logical sense as it’s a proven failed policy of trying to handle inflation caused by supply shocks. Sunak should have Bailey’s P45 in the post tonight.”
What if all this interest rate pain brings no gain on inflation?
Thursday 22 June 2023 13:05 , Daniel O'Boyle
When Rishi Sunak first started pledging that he would halve inflation by the end of the year, it must have seemed a no-brainer.
The level of inflation isn’t in his gift; he can nudge it perhaps, but it’s really down to the Bank of England and consumer behaviour.
But that didn’t matter. Few people would get that point and the Bank’s action on interest rates meant inflation was bound to fall. Easy win, he thought.
Shares sink lower on 5% rates call
Thursday 22 June 2023 12:46 , Daniel O'Boyle
The FTSE 100 sank lower and is now down more than 1% for the day following the Bank of England’s decision to hike rates to 5%.
MPC signals willingness to hike again
Thursday 22 June 2023 12:41 , Daniel O'Boyle
Ruth Gregory, deputy chief UK Economist at Capital Economics, who correctly predicted the half-point hike, said another hike is likely on the way,, but predicts that rates will peak at 5.25%, significantly below City expectations.
She said: “By saying once again that ‘the risks around the inflation forecast are skewed significantly to the upside’ and that ‘if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”’ the MPC signalled its willingness to raise rates again should inflationary pressures remain strong.
“The Governor Andrew Bailey, also stated in a letter to the Chancellor his intention to do what is necessary to return inflation to the 2% target, suggesting the Bank will continue hiking rates if the data warrant it. That said, the Bank has not committed to raising rates again or said that 50bps are once again the norm.”
Traders up bets on higher Bank of England peak rate
Thursday 22 June 2023 12:36 , Daniel O'Boyle
City traders have upped their bets on higher terminal rates, after today’s decision from the Bank of England.
Before the latest call, markets had priced in around a 70% chance that rates peak at 6% or higher, but now see around a 90% chance of rates hitting that mark, which would be the highest since 1999.
Markets also predict a more than 40% chance that rates rise as high as 6.25%.
That has sent short-dated gilts slightly upwards, back towards Monday’s 15-year highs.
Yields for gilts, however, are down, in a sign that the City thinks Threadneedle Street could bring rates back down again sooner than previously thought.
“The wage-price spiral won’t break itself"
Thursday 22 June 2023 12:28 , Daniel O'Boyle
George Lagarias, Chief Economist at Mazars, says the half-point rise is the right call:
“A double rate hike was appropriate following yesterday’s bad inflation number. The wage-price spiral won’t break itself. The central bank’s move is a step towards the right direction. Unfortunately, from where we are today, there aren’t many good options.
“The UK is in a vicious inflation cycle plain and simple. Unless demand is decisively curtailed, there’s a real danger that inflation will get out of hand. Make no mistake, this means significant pain for consumers. The government could step up to alleviate pressures in the labour market and increase housing availability, which should help diffuse the inflation bomb faster. Presently, markets are discounting four more rate hikes, a one percent higher rate by the end of the year.”
Bailey: “We know this is hard”
Thursday 22 June 2023 12:13 , Daniel O'Boyle
Bank of England governor Andrew Bailey offered some sympathy for mortgage holders as the Bank of England hiked rates to 5%: “We've raised rates to 5% following recent data which showed that further action was needed to get inflation back down.
“The economy is doing better than expected, but inflation is still too high and we’ve got to deal with it. We know this is hard - many people with mortgages or loans will be understandably worried about what this means for them. But if we don't raise rates now, it could be worse later. We are committed to returning inflation to the 2% target and will make the decisions necessary to achieve that.”
Interest rates hit 5%
Thursday 22 June 2023 12:09 , Daniel O'Boyle
The Bank of England has hiked interest rates to 5%, as it intensifies its battle with stubbornly high inflation in a move that will inflict further pain on hundreds of thousands of mortgage payers.
In one of the highest profile decisions in a decade, Governor Andrew Bailey and his eight colleagues on the Monetary Policy Committee opted for a rise of a half a percentage point, double the size of the last rise.
The decision came after a 7-2 vote, with doves Swati Dhingra and Silvana Tenreyro voting to keep rates at 4.5%.
Bank of England hikes rates to 5%
Thursday 22 June 2023 12:01 , Daniel O'Boyle
The Bank of England has opted to raise interest rates by half a percentage point to 5%
Bank of England rates call imminent
Thursday 22 June 2023 11:50 , Daniel O'Boyle
The Bank of England will announce its latest interest rates decision in just 10 minutes, with markets still seeing an almost 50/50 chance of either a quarter-point or half-point rate rise.
Take a look at our snapshot to see where things stand in the markets ahead of the decision.
Watchdog blocks merger of hearing aid firms ‘to protect patients and NHS’
Thursday 22 June 2023 11:26 , Daniel O'Boyle
The competition watchdog said it was protecting customers and the NHS on Thursday as it blocked part of the planned tie-up between two hearing aid companies.
The Competition and Markets Authority (CMA) said that it would not allow the merger of Cochlear Limited and Oticon Medical to go ahead.
Cochlear agreed to buy Oticon from Danish company Demant in April last year, paying 850 million Danish krone (£98 million) for the business.
Ousted Vodafone boss picks up more than £4m in pay and bonuses in 2022-23
Thursday 22 June 2023 10:53 , Daniel O'Boyle
Vodafone’s former boss Nick Read landed more than £4 million in salary and bonuses for the year to March, including a £904,000 annual award, despite being ousted at the end of 2022 amid poor performance and swingeing job cuts, it has been revealed.
The mobile phone giant’s annual report shows that Mr Read picked up a bumper pay package worth £3.9 million for 2022-23, which also included a £1.6 million shares award for a previous long-term bonus scheme that is due to pay out in August and a £406,000 cash award for dividends that would have been paid on those shares.
On top of this, he received £270,375 in salary for the first three months of 2023, when he remained an adviser to the board, and will be paid £732,629 in lieu of salary, plus benefits, for the remainder of his 12 months’ notice period until March next year.
Ocado shares jump 40%, FTSE 100 under pressure
Thursday 22 June 2023 10:22 , Graeme Evans
Ocado shares are up by as much as 40% as investors lock on to speculation of potential takeover interest from an American suitor.
The rise of 176.25p to 606.25p came as the Times said heavyweights such as Amazon may be pondering an 800p-a-share move.
Ocado shares had been above 2000p during 2021’s pandemic lockdowns as the business also rolled out deals for its customer fulfilment centres with some of the world's largest food retailers including US-based Kroger.
Investor appetite towards the loss-making company has been undone by rising interest rates and economic uncertainty since then, leaving it as low as 342p earlier this month.
Without the speculation, it’s likely Ocado shares would have been among the casualties in today’s bruising session for blue-chip shares.
The FTSE 100 index fell 0.8% or 60.69 points to its lowest level since the start of June at 7498.49. The selling for markets on both sides of the Atlantic came as Federal Reserve chair Jerome Powell reiterated the need for further US interest rate rises.
The uncertainty over the world’s biggest economy put pressure on gaming group Flutter Entertainment, which has previously described the “enormous value creation opportunity” of its key US market. Shares in the Betfair and FanDuel business fell 2.5% or 400p to 15,600p.
Other heavy fallers included United Utilities and Airtel Africa after their shares traded without the most recent dividend awards.
Housebuilder Berkeley joined Ocado on a shortened risers board, lifting 60p to 3911p after analysts at Jefferies highlighted a 4474p price target.
The FTSE 250 index fell 0.6% or 109.17 points to 18,462.28, with lender Virgin Money 3% or 4.95p lower at 149.05p as worries mount about the UK economic outlook.
Mortgage prices surge further
Thursday 22 June 2023 10:01 , Daniel O'Boyle
New data released today from Moneyfacts shows that the average two-year deal now has an interest rate of 6.19 per cent, up from 6.15 per cent yesterday, while the average five-year rate rose to 5.82% from 5.79%.
Buy-to-let rates also rose, with the average two-year rate up to 6.49% and the average five-year buy-to-let deal at 6.33%.
The number of products on the market remained roughly stable after almost 150 products were pulled by lenders yesterday.
Mulberry asks for extra time
Thursday 22 June 2023 09:56 , Simon Hunt
Mulberry today sought to reassure shareholders that there weren’t any problems with its accounts after it unexpectedly postponed the publication of its annual results.
The luxury fashion brand, known for its iconic leather handbags, was due to publish the results today but said it had to delay the launch by around a week in order “to allow the company’s auditors some additional time to complete its procedures.”
“The revised announcement date has not arisen as a result of any concerns relating to the results,” Mulberry said.
In its half year results late last year, the Somerset-based business posted a 1% drop in sales to £64.9 million, while it swung to a pre-tax loss of £3.8 million down from a £10.2 million profit the year before.
Premier Inn owner hails return to demand in London
Thursday 22 June 2023 09:36 , Simon Hunt
The owner of Premier Inn has hailed a resurgence in bookings in London as Brits on squeezed incomes flocked to its low-cost hotels.
Whitbread, which also owns the Beefeater and Brewers Fayre restaurant chains, reported a 32.5% jump in accommodation sales in London in the three months to the start of June to top £120 million, while sales outside the capital grew 14% to £372 million. Food and beverage revenues rose just shy of 10% to £194 million.
Whitbread said: “Consumer demand in the UK has remained strong. Whilst there was good revenue growth in both the Regions and London, demand was particularly strong in London.”
But the firm cautioned that “trading at the value end of the pub restaurant market remains challenging.”
Whitbread said it was on course to break even for the year.
Red signal for Hornby as shares slide
Thursday 22 June 2023 08:42 , Simon Hunt
Shares fell 11% to 20p for model train maker Hornby as it swung to a loss.
The firm posted sales growth of 2.5% to £55 million in the year to the end of March, while losses hit £5.9 million from a £600k profit the year before.
Hornby’s debt levels swelled from £0.3 million to £6.9 million which it said was because of an “over-commitment to stock derived from an expectation that the top line revenue growth trajectory would have continued to follow that of recent years.”
“The UK economy struggled in 2022, with growth slowing and inflation rising. The war in Ukraine caused energy prices to rise sharply, which put a squeeze on households who were facing higher costs and uncertainty. Our own prices rose as factory costs increased, these were passed on to our customers,” Hornby said.
FTSE 100 down more than 1%, Ocado up 8%
Thursday 22 June 2023 08:40 , Graeme Evans
European markets are under pressure after Federal Reserve chair Jerome Powell warned US interest rate rises will need to rise further.
The FTSE 100 index is 1.2% or 94.29 points lower at 7464.89, in line with the level of selling experienced by Paris and Frankfurt benchmarks.
London’s fallers board was led by ex-dividend stocks including United Utilities and Airtel Africa.
Two blue-chip companies reporting today saw their shares fall in the weak market conditions, with Premier Inn owner Whitbread down 23p to 3369p and packaging firm DS Smith 0.9p lower at 289.3p.
A shortened risers board was led by Ocado as takeover speculation continues to boost the grocery warehouse technology stock, which lifted 8% or 35.1p to 465.1p.
The FTSE 250 index fell 131.29 points to 18,440.16, with Virgin Money off 3% or 5.3p to 148.7p amid worries over the UK outlook.
Stocks fall in opening trade
Thursday 22 June 2023 08:26 , Simon Hunt
The FTSE is down 1% in the opening minutes of trade in London.
Here’s a look at your key markets data.
Homeowners warned 2-year fixed mortgage rates could hit 7%
Thursday 22 June 2023 08:17 , Daniel O'Boyle
Two-year fixed mortgage rates could hit seven per cent as the Bank of England seeks to tame runaway inflation, a financial expert warned on Thursday.
Luke Hickmore, investment director of fixed income at abrdn, also stressed that many people will be forced to renew their mortgages in the autumn having taken them out two years ago during the Covid pandemic when stamp duty was reduced, often at a rate of around two per cent.
The Bank of England’s Monetary Policy Committee was expected to hike interest rates on Thursday, by 0.25 percentage points, or even 0.5, after official figures showed inflation entrenched at 8.7 per cent in May.
Higher prices more than offset lower sales at DS Smith
Thursday 22 June 2023 07:45 , Daniel O'Boyle
The boss of packaging firm DS Smith hailed its “cost and risk management” and higher prices as profits jumped 75% despite lower volumes.
Profit came to £661 million at the packager used by a number of top ecommerce businesses.
CEO Miles Roberts said this came despite less sales, thanks in part to higher prices.
“Our cost and risk management, together with price increases to reflect multi-year cost inflation, have more than offset reduced volumes during the year and delivered the excellent growth in profit and returns,” he said.
Inflation shock fuels bets on 5% Bank rate
Thursday 22 June 2023 07:44 , Graeme Evans
According to Deutsche Bank, the City is pricing a 37% chance of a 0.5% interest rates hike to 5% by the Bank of England at 12pm today.
Even if the Bank’s monetary policy committee opts for a 0.25% rise, market pricing for 76 basis points of rate rises across June and August suggests a big rise at one of the next two meetings is on the way.
Yesterday’s shock inflation release of 8.7%, with core CPI hitting a 31-year high of 7.1%, fuelled expectations in the City that the Bank rate will reach 6% in the coming months.
Deutsche Bank strategist Jim Reid said the UK now looked to be a real outlier on inflation, with the highest rate in the G7 by some margin.
He wrote today: “Headline euro area inflation “only” stood at 6.1% in May, and if you calculate US inflation on the same basis as Europe does, then the comparable headline measure is now down to just 2.7%.”
Wall Street tech stocks hit by Fed comments, FTSE 100 seen lower
Thursday 22 June 2023 07:16 , Graeme Evans
Mega-caps including Tesla and Alphabet were at the forefront of Wall Street selling yesterday after Federal Reserve chair Jerome Powell signalled more US rate rises.
In testimony to Congress, Powell said further action was needed to ensure that inflation returns to its target as he dashed hopes among some traders that rates might fall later in the year.
Growth stocks were most impacted by the warning as Tesla shares fell 5.5%, with AI semiconductor firm Nvidia and Google owner Alphabet down 2%.
The technology-focused Nasdaq Composite closed 1.2% lower as Wall Street finished in the red for the third session in a row. The S&P 500 index lost 0.5% and the Dow Jones Industrial Average fell by 0.3%.
The US selling is set to mean a weak session for London shares, with CMC Markets forecasting that the FTSE 100 will open 45 points lower at 7514.
The top flight closed down 10 points last night, compared with a fall of 0.9% or 174 points for the FTSE 250 index after recession fears triggered by the prospect of more interest rate rises unsettled UK-focused stocks.
Will it be 4.75% or 5%? High noon for mortgage payers and rate-setters alike as interest rate hike looms
Thursday 22 June 2023 07:12 , Simon Hunt
High noon is looming for mortgage payers and borrowers across London and the UK, with the Bank of England due to make one of the highest profile interest rate calls in a decade on Thursday.
It is widely expected to lift the cost of borrowing for the thirteenth consecutive time and its most likely to take the base cost of borrowing to 4.75%, up by a quarter of a percentage point.
City experts are convinced that the BOE’s governor Andrew Bailey and his eight colleagues on the Monetary Policy Committee will have to vote through a hike, with interest rates already at their highest since 2008.
But the pressure is on for an even bigger, half-point rise to 5%, with inflation stuck at almost 9% and proving harder for the BOE to tame toward its 2% target.
Capital Economics Neil Shearing, group chief economist, called the rate call “finely balanced” but predicted a vote for a 5% base rate, in part due to higher pay.
“Inflation appears to have infected the labour market and wage setting to a greater extent in the UK than elsewhere,” he added.
Recap: Yesterday’s top stories
Thursday 22 June 2023 06:41 , Simon Hunt
Good morning. Here’s a look back at our top stories from yesterday:
Inflation in the UK remained unchanged at 8.7% while core inflation rose in signs there could be steeper interest rate rises in the months ahead.
A charity has warned that more than two in five mortgage holders are finding it difficult to pay bills amid an expected rise in rates.
The owner of Southend Airport has put the site up for sale after it warned on the state of its own finances.
Fintech firm Volt secured a $60 million funding round to expand to Asia Pacific countries.
