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FTSE closes lower as BOE holds interest rates

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Kumutha Ramanathan
·Contributor
·3 min read
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London, United Kingdom
London's FTSE pared back gains following the BOE's latest rate decision. Photo: Getty

London’s FTSE (^FTSE) was down 0.2% at market close on Thursday following the Bank of England’s (BOE) latest decision to hold the UK interest rate unchanged at 0.1%. The central bank also warned that COVID-19 restrictions were likely to hit economic activity in early 2021.

The BOE’s announcement comes on the heels of the US Federal Reserve’s on Wednesday, which fuelled an earlier rally in Europe as chairman Jerome Powell outlined a cautiously optimistic outlook for the most powerful nation in the world.

Germany’s DAX (^GDAXI) also gained 0.9% at market close and France’s CAC 40 (^FCHI) was up 0.1%.

READ MORE: Bank of England warns on COVID drag as interest rate held at record low

US markets were higher at the end of the European trading day. The S&P 500 (^GSPC) gained 0.4%, the Dow Jones (^DJI) tilted upward 0.4% and the Nasdaq (^IXIC) jumped 0.4%.

The Fed will maintain its massive bond-buying program until “substantial” progress is seen in employment and inflation, keeping its bond buying program at the rate of at least $120bn (£87.04bn) a month.

“There was little in the way of surprises from the Federal Reserve last night,” said Michael Hewson, chief market analyst at CMC Markets.

WATCH: Fed keeps rate near zero, sees brighter 2021

While Powell warned that the coming months would be “particularly challenging,” as the US battles a surge in coronavirus cases, he was more upbeat about the longer term outlook by improving its 2020 GDP forecast to a -2.4% contraction, while upgrading its 2021 forecast to 4.2% from 4%. The Fed was also more optimistic about the unemployment rate, forecasting it to fall to 5% by the end of next year.

“The Federal Reserve dialled up the volume on a number of the economic forecasts yesterday,” said Naeem Aslam, chief market analyst at AvaTrade. “It was evident that the Fed is confident and optimistic about the economic recovery and the market rallied on the back of this.”

Brexit talks are also moving forward, with sterling extending its rally into Thursday against the dollar and euro, amid continued optimism about the possibility of a Brexit trade deal and hopes that a quick US trade deal could be possible too.

Micheal Barnier, the EU’s chief Brexit negotiator, said there had been “good progress” in Brexit talks on Thursday morning. Separately, US Trade Representative Robert Lighthizer told the BBC a free trade agreement between the UK and US was “extremely likely.”

The UK government has also extended its costly programme of job and business support yet again, a sign of growing concerns about the continued impact of COVID-19.

WATCH: UK, US sign post-Brexit customs agreement

The global COVID-19 immunisation campaign continues, and the US Food and Drug Administration will meet on Thursday to discuss an Emergency Use Authorization for the Moderna (MRNA) vaccine, following the approval of the Pfizer (PFE) and BioNTech (BNTX) vaccine that has already started to be rolled out.

In a bid to shore up public confidence in getting the vaccine, US vice president Mike Pence will publicly receive a COVID-19 vaccine on Friday while president-elect Joe Biden is expected to get a shot as early as next week.

The European Commission is also reviewing the Pfizer (PFE)/BioNtech (BNTX) vaccine and is expected to approve it on Monday if it receives the endorsement of a key drugs oversight committee. That particular vaccine candidate could then be distributed to vaccine centers in the continent as early as Wednesday.

Asian markets were positive at market close. Hong Kong’s Hang Seng (^HSI) gained 0.8%, and Japan’s Nikkei (^N225) was higher 0.2%. The Shanghai Composite (000001.SS) headed upward 1.1%.