The strong pound leaped another half a percent against leading currencies after UK retail sales surged last month and Bank of England policymakers indicated they were warming to a rise in interest rates.
Sterling advanced to $1.6920 to the dollar after retail sales in April jumped by 6.9% over the year and by 1.3% over the month, way ahead of forecasts of 5.2% and 0.5% annual and monthly growth.
Further stimulus to the British currency came from minutes of the Bank of England’s monetary policy committee. Although these showed its nine members voted unanimously to keep interest rates at 0.5% earlier this month, they said the debate of when to raise the cost of borrowing had become ‘more balanced’.
The Bank’s latest forecasts indicate a rate rise is likely in a year’s time but some economists think a rise should happen later this year.
However, the minutes said the MPC members agreed ‘it would be necessary to see more evidence of slack [in the economy] reducing before an increase in Bank rate would be warranted.’
There was plenty of slack in the FTSE 100 as the UK’s leading index dipped for a third consecutive day, having hit a 14-year high last week.
The blue chip index shed 7 points or 0.1% to 6,794, with Morrisons (MRW) the biggest faller, down 8.7p or 4.2% at 200.1p, after Deutsche Bank analysts downgraded the supermarket to ‘sell’ from ‘hold’ on valuation grounds.
Burberry (BRBY) dipped 3p to £15.12 after its new boss Christopher Bailey predicted the luxury brands retailer would quadruple sales in Japan by 2017 but repeated a warning that the strong pound would hit profits this year.
The FTSE 250 did better, gaining 91 points or 0.6% to 15,532.
Telecom Plus (TEP) led the mid cap index higher with a 11.7% or 160p gain to £15.30 after the multi-utility expressed confidence in growing profits by 50% this year, having overseen a 25% rise in profits for 2013/14.
Britvic (BVIC) gained 48p of 7% to 742.5p after the soft drinks maker said its Fruit Shoot drink was available in the US. The company generates 70% of revenues from the UK and has made international growth a priority. It declared a 13% increase in its interim dividend to 6.1p per share.