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Pound falls as Carney cools rate rise expectations

Pound falls as Carney cools rate rise expectations

The pound has fallen as comments by Bank of England governor Mark Carney served to cool market expectations of an imminent rise in interest rates.

The pound has fallen below $1.70, and from recent five-year highs, to $1.6987. It had earlier fallen by more than half a cent, to as low as $1.6971 on Carney's comments, made before the Treasury Select Committee (TSC).

Carney sent a surprise dovish message to the markets in his TSC appearance, saying recent data showing average real wages contracted in April showed the economy had more slack. 'That would suggest to me that there has been more spare capacity in the labour market than previously thought,' he said.

Carney's earlier this month used his Mansion House speech to warn that interest rates could rise 'sooner than markets expect'.

Howard Archer, chief European and UK economist at IHS Global Insight, said that an interest rate rise before the end of the year should still not be ruled out.

'With the economy currently sustaining healthy momentum and the unemployment rate coming down markedly, we believe that the first interest rate hike is more likely to come in late-2014, although it is far from a done deal,' he said.

11:04 The FTSE 100 edged lower as shares in housebuilders continued to dip, although strong performance from oil stocks helped limit the retreat.

The UK blue-chip index slipped 21 points, or 0.3%, to 6,780. Barratt Developments (BDEV) and Persimmon (PSN) were among the biggest fallers for a second consecutive day, as sentiment continues to turn against house builders due to worries over a hike in interest rates. Barratt fell 10.4p, or 3%, to 340.4p, while Persimmon shed 23p, or 1.9%, to £11.93.

Tool hire company Ashtead Group (AHT) also suffered, dropping 20.5p, or 2.4%, to 833.3p.

Oil stocks Tullow Oil (TLW) and Petrofac (PFC) shrugged off a dip in the price of Brent crude to $113.57 a barrel following the recent surge over $115 in response to the conflict in Iraq.

Tullow rose 6.5p, or 0.7%, to 878.5p after announcing its partner in northern Kenya, Africa Oil, had found oil and gas at the Ngamia-2 well. 'We continue to believe that reinvestment will deliver further oil discoveries which, in Kenya alone should command a higher valuation than the current share price,' said analysts at Liberum.

Petrofac added 6p, or 0.5%, to £12.51 after revealing that its order backlog stood at a record $20.1 billion (£11.8 billion). 

The fall in the oil price allowed airlines to pare some of yesterday's falls. EasyJet (EZJ) rose 10p, or 0.7%, to £14.33, while International Airlines Group (ICAG), owner of British Airways, added 2.9p, or 0.8%, to 382.9p.

Among 'mid cap' stocks in the FTSE 250 index, Domino Printing (DOPR) plunged 103p, or 14%, to 643.8p after the bar code printer maker warned profits growth in the next year could suffer from competition in Asia and higher R&D costs. It said results for the year to October 2015 could be 'broadly similar' to its 2014 results. Analysts are expecting a pre-tax profit of £54 million for the current 2014 year, according to Reuters.

Croda (CRDA) lost 222p, or 9.2%, to £21.84 after the chemicals manufacturer warned its profits would be hit by the strong pound.

Chemring (CHG) shed 13.8p, or 6.6%, as the defence contractor saw underlying profits before tax slide 29% to £18 million as a result of defence spending cuts in its main markets. It also promoted Michael Flowers as its new chief executive, replacing Mark Papworth who oversaw a strategic review last year.

Imagination Technologies (IMG), which licenses designs to smart phone companies, jumped by 12.2p, or 5.2%, to 245.7p after it announced results ahead of investor expectations. 'After three major downgrades in the last 15 months, Imagination looks to have turned the corner on forecast expectations at last,' said Roger Phillips, analyst at Investec. 

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