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FTSE closes flat as Bank of England holds interest rates

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·3-min read
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Bank of England interest rates
The MPC voted to maintain its quantitative easing bond-buying programme at £895bn, and its corporate bond target at £20bn. Photo: Thomas Krych/SOPA /LightRocket via Getty Images

European stock markets trended mostly upwards on Thursday as the Bank of England (BoE) announced it would keep interest rates on hold.

In London, the FTSE 100 (^FTSE) closed flat on the day, held back by a firmer pound, while the French CAC (^FCHI) advanced 1.1% and the DAX (^GDAXI) was almost 0.9% higher in Frankfurt.

It came as the Monetary Policy Committee (MPC) voted 9-0 to leave the Bank rate at record lows of 0.1%, as widely expected. 

It also voted to maintain its quantitative easing (QE) bond-buying programme at £895bn ($1.2tn), and its corporate bond target at £20bn. However, two policymakers, deputy governor Dave Ramsden and external member Michael Saunders, voted against this proposition.

They wanted to stop QE early, by reducing the amount of UK government bonds the Bank buys, from £875bn to £840bn.

Read more: Bank of England holds interest rates at 0.1%

Economists had anticipated the Bank could signal a tapering of bond-buying support, following a similar move at the US Federal Reserve last night.

Market watchers have previously warned that an interest rate rise at the wrong time could tip many borrowers over the edge into more debt and put the breaks on recovery.

"There’s no denying that the Bank faces an increasingly challenging economic environment in the months ahead, Richard Carter, head of fixed interest research at Quilter Cheviot, said.

"The Bank needs to ensure that inflation expectations among consumers and businesses remain under control while allowing the recovery to continue. Small and limited interest rate hikes next year remain a possibility.”

Watch: What are negative interest rates?

On Wall Street, the S&P 500 (^GSPC) rose 1.3% by the time of the European close, and the tech-heavy Nasdaq (^IXIC) climbed 0.9%. The Dow Jones (^DJI) surged 1.6% higher.

Last night, the US Federal Reserve said it could hike rates six to seven times by the end of 2024, illustrating the central bank’s optimism that the COVID-19 recovery will progress well enough to tighten its easy money policies in a few years.

The policy-setting Federal Open Market Committee still held interest rates at near-zero in its updated statement, but said it had advanced talks on paring back its asset purchase program.

Michael Hewson of CMC Markets said: “Powell’s press conference came across as much more hawkish as he outlined the beginning of the process of a tapering of asset purchases this year.

“In its statement the Fed stated that 'if progress continues broadly as expected, the Committee judges a moderation in the pace of asset purchases may soon be warranted.'”

Read more: UK government in need of plan to ‘level up’ foreign investment

Stocks in Asia were mixed overnight after some positive news from beleaguered property developer Evergrande Group in China. Investors remain cautious about the company’s future, looking in particular to a $83.5m dollar-bond interest payment due later on Thursday.

On Wednesday it said that payment due for an onshore renminbi-denominated bond had “already been resolved through off-exchange negotiations.”

In Japan, the Nikkei (^N225) sank 0.7% while other key markets gained. The Hang Seng (^HSI) rose 1% and the Shanghai Composite (000001.SS) climbed almost 0.4%.

Watch: What are SPACs?

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