LONDON MARKETS: U.K. Stocks End At 3-week High As Bank Of England Delivers 'dovish' Rate Hike

By Carla Mozee and Victor Reklaitis, MarketWatch Features Dow Jones Newswires

BOE raises key rate first time in 10 years on Super Thursday, but not in a hawkish fashion

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Blue-chip stocks in the U.K. finished at a three-week high Thursday while the pound dropped after the Bank of England flagged risks to the British economy as it raised its key interest rate for the first time in 10 years.

What markets are doing: The FTSE 100 index rose 0.9% to end at 7,555.32, scoring its highest close since Oct. 12, according to FactSet data. The index on Wednesday fell 0.1% (http://www.marketwatch.com/story/ftse-100-drives-higher-despite-next-gloom-as-commodity-stocks-spread-cheer-2017-11-01).

The London benchmark scaled higher as the pound dropped to $1.3061 from $1.3246 late Wednesday in New York.

Against the euro, sterling bought EUR1.1204, down from EUR1.1399 in the previous session.

What's moving markets:

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The Bank of England in a 7-2 vote raised its key interest rate by a quarter-percentage point to 0.5%, meeting widely held expectations for the first rate increase since July 2007. The move came as inflation sits at 3%, above the bank's 2% target, and British economic growth has slowed.

"There remain considerable risks to the outlook, which include the response of households, businesses and financial markets to developments related to the process of EU withdrawal," the bank said in a statement, referring to Britain's plan to exit from the European Union, or Brexit.

As the pound fell, shares of multinational companies gained. A weaker pound can provide a boost to those companies as they generate most of their sales in foreign currencies.

Among multinationals, British American Tobacco PLC (BATS.LN) rose 1.6%, while consumer-products heavyweight Unilever PLC (ULVR.LN) and liquor maker Diageo PLC (DEO) both picked up 1.1%.

What strategists are saying:

"The bank has made it clear that it is likely to be one and done, rather than embark on a rate-hiking cycle. This is a typical dovish hike," said Kathleen Brooks, research director at City Index, in a note.

"Dropping the reference to the market under-pricing future tightening, while at the same time referencing the market pricing in two rate hikes over the next three years, doesn't suggest another rate hike is planned any time soon," said Craig Erlam, senior market analyst at Oanda, in a note.

See:BOE delivers a 'typical dovish hike'--analysts react to historic U.K. rate rise (http://www.marketwatch.com/story/boe-delivers-a-typical-dovish-hike-analysts-react-to-historic-uk-rate-rise-2017-11-02)

Stock movers:

Randgold Resources (RRS.LN) (RRS.LN) dropped 7.2% as the miner said its pretax profit fell in the third quarter after a decline in production. Production was down 9% (http://www.marketwatch.com/story/randgold-profit-hit-by-fall-in-production-2017-11-02) to 310,618 ounces of gold compared with the second quarter.

BT Group PLC (BT.A.LN) lost 2.7%. The telecom earlier Thursday held its interim dividend steady (http://www.marketwatch.com/story/bt-profit-revenue-drop-points-to-pension-deficit-2017-11-02) at the same time it said second-quarter pretax profit and revenue fell from the year-ago period.

Economic docket:

IHS Markit/CIPS said its U.K. construction PMI for October came in at 50.8. That was above a 48.0 FactSet consensus estimate.

(END) Dow Jones Newswires

November 02, 2017 13:07 ET (17:07 GMT)