LONDON MARKETS: FTSE 100 Ends With A Whimper After Bank Of England Trims Growth Outlook

By Carla Mozee, MarketWatch Features Dow Jones Newswires

BT cutting thousands of jobs; U.K. industrial production shrinks

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U.K. stocks barely closed higher Thursday, unable to much gain traction after the Bank of England pared its economic growth outlook, even as the pound was driven lower.

The FTSE 100 index finished higher by 1.39 point at 7,386.63 after searching for firm direction throughout the session on what was a packed day for investors. Utility, consumer services and industrial shares fell while commodity and consumer-goods stocks ended higher.

The central bank, led by Gov. Mark Carney, released its quarterly Inflation Report, monetary policy decision and minutes of its last meeting on Thursday. But with the bank showing no urgency in raising interest rates, investors yanked the pound below $1.29 against the U.S. dollar.

The bank's key interest rate was held at 0.25% (http://www.marketwatch.com/story/bank-of-england-votes-7-1-to-hold-key-rate-at-025-2017-05-11), as expected, in a vote of 7-1.

"We didn't see some major hawkish shift from the Bank of England. Carney doubled down on the Bank of England's approach of looking through the coming increase in inflation," said Ranko Berich, head of market analysis at Monex Europe, in an interview.

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"What they are saying, basically, is all of this inflation overshoot is going to be purely due to sterling depreciation," said Berich.

Consumer price inflation is above the central bank's 2% target, as the drop in sterling from around $1.50 since last year's Brexit vote has made imported goods more expensive for consumers to buy.

Sterling bought $1.2886, but hit an intraday low of $1.2849. It traded at $1.2939 late Wednesday.

A weaker pound can help lift shares of blue-chip multinational companies that make most of their profit and sales overseas, but the move didn't produce a major gain for the FTSE 100 on Thursday.

Growth and sterling: The British currency hasn't traded above $1.30 since early October.

"If we're going to see sterling move above $1.30 on a sustainable basis, we'll probably need to see much firmer signs of things like wage growth and output in the U.K. economy than what we have seen," Berich said.

The central bank reduced its 2017 economic growth forecast to 1.9% from 2%. An increase in exports is expected to help offset the drag on consumer spending from rising prices and a slow pace of wage growth.

"This is going to be a more challenging time for British households over course of this year", warned Carney, during a news conference (https://twitter.com/bankofengland/status/862626645647253507).

The bank's forecasts in its Inflation Report (http://www.bankofengland.co.uk/publications/Pages/inflationreport/2017/may.aspx) assumes that the U.K. will be able to extricate itself from the European Union without running into roadblocks.

"The MPC's projections continue to be conditioned on a smooth transition to an average of possible outcomes for the U.K.'s post-Brexit trading arrangements," Carney said.

BT dividend gloom: Shares of BT (BT.A.LN) (BT.A.LN) stumbled 4.5% as the telecommunications company lifted its proposed final dividend by 10%, but offered a downbeat outlook.

The "dividend policy remains progressive but 2017-18 dividend growth [is] to be lower than the 10% previously anticipated," BT said in its fourth-quarter report.

BT also said it would cut 4,000 jobs as part of a restructuring exercise and not pay its chief executive a bonus, as it reported a drop in quarterly pretax profit (http://www.marketwatch.com/story/bt-cuts-4000-jobs-ceo-bonus-as-profit-falls-2017-05-11).

Stock movers: Hikma Pharmaceuticals PLC (HIK.LN) sank 8.2% after company said there's 'a low likelihood' that this year it will win approval from the U.S. Food and Drug Administration to make a generic version of GlaxoSmithKline PLC's (GSK.LN) Advair asthma medication.

Hikma based its assessment the nature of feedback from the FDA. Hikma "will work collaboratively with the FDA to address their outstanding questions," it said in a statement.

A number of shares traded ex-dividend, or without dividend rights, on Thursday. British Gas parent Centrica PLC (CNA.LN) fell 1.3%, with that stock also hit with a downgrade by J.P. Morgan Cazenove to underweight from overweight. Miner Glencore PLC (GLEN.LN) ended up 1.4%, and Glaxo rose 1.3%.

Data: A reading on U.K. industrial production showed activity shrank 0.5% in March (http://www.marketwatch.com/story/uk-industrial-production-shrinks-on-warm-weather-2017-05-11). Output on a year-over-year basis rose 1.4%, according to the Office for National Statistics, but that was below market expectations of 1.9% growth. Factory output figures also fell short.

Meanwhile, the country's total trade deficit widened sharply in March, by GBP5.7 billion, as imports of machinery, transport equipment, oil and chemicals increased.

(END) Dow Jones Newswires

May 11, 2017 12:15 ET (16:15 GMT)