LONDON MARKETS: U.K. Stocks Jump To 3-week High As Bank Of England Strikes Dovish Note On Future Rate Hikes

By Carla Mozee, 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. climbed to a three-week Thursday while the pound dropped after the Bank of England flagged risks to the British economy as it raised rates its key interest rate for the first time in 10 years.

What markets are doing: The FTSE 100 index rose 0.8% to 7,544.67, with only the tech sector in the red, and the gauge was on track for 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 $1.3119 from $1.3246 late Wednesday in New York.

Against the euro, sterling bought EUR1.1257, which is down from EUR1.1399 in the previous session.

The yield on the 10-year U.K. bond fell 8 basis points to 1.262%.

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What's moving markets:

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 hike 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 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 1.9%, consumer products heavyweight Unilever PLC (ULVR.LN) gained 1.6% and liquor maker Diageo PLC (DEO) picked up 1.5%.

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 -- the Bank has said that any future hikes will be "gradual and limited" [and ] the BOE has also removed from its communication that it will raise rates faster than the market expects, which suggests that if we are lucky the BOE will hike rates once in 2018, which is what the market currently expects," 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.

Stock movers:

Randgold Resources (RRS.LN) (RRS.LN) dropped 3.2% 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) turned down 2.6%. The telecommunications company 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 09:07 ET (13:07 GMT)