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Pound leaps, FTSE sinks as Bank of England divided
by Chris Marshall on Aug 14, 2013 at 09:57
The British pound reversed earlier losses, springing higher, as it was revealed that not all of the Bank of England’s policy-setting members stand behind the decision under new governor Mark Carney to link future interest rates to unemployment.
The minutes of the nine-man Monetary Policy Committee’s August meeting showed that Martin Weale, while ‘supportive of the adoption of forward guidance’, ultimately voted against the proposal.
The release of the minutes, which add to jitters about just how long rates will really be kept at a record low of 0.5%, coincided with an update on the labour market that showed the unemployment rate unchanged at 7.8%, far above the 7% threshold that could trigger a change to the bank base interest rate.
The pound rose 0.3% to $1.5489, while the FTSE 100 added to earlier losses to trade 0.4% lower at 6,586 after Weale’s unexpected 'no' vote, which was made ‘to register his preference’ for a change to one of the three ‘knockouts’, or caveats, to the Bank of England’s forward guidance pledge, amid his concerns about the threat to inflation expectations.
Shares had already been drifting lower ahead of the UK data in quiet August trade. This was despite upbeat data from Europe showing the French economy grew 0.5% in the second quarter of the year and Germany by 0.7%. This was followed by a reading for the whole eurozone showing growth of 0.3% in the quarter, slightly better than expected and finally ending its longest ever recession.
The FTSE 100 was afflicted by a large number of shares going ‘ex-dividend’. Rio Tinto (RIO.L), Anglo American (AAL.L), Diageo (DGE.L) and SABMiller (SAB.L) were among companies trading without their dividend attraction and weighing on the Footsie.
At the other end of the index, Schroders (SDRt.L) was among the top gainers, up 0.9% to £24.48 after analysts at Morgan Stanley raised their price target for the asset manager’s shares to £26.50 from £25.25. The analysts said Schroders’ ‘risk-reward remains attractive’ even as the shares are trading at a small premium to the sector.
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