BoE Rate Cut, RWE Bids for British Energy

123jump.com Staff
10 Apr, 2008
New York City

The Bank of England lowered its key rate to 5% from 5.25% after it weighed weak conditions in housing market and rising pressures on inflation. The Bank also indicated that economic conditions are likely to be challenging for the rest of the year. Separately, ECB left its rate unchanged and worried that tight labor markets may fuel inflation. Retailers in UK fell after DSG lowered its earnings estimate and Kingfisher indicated tough retail environment.

[R]2:00PM New York, 7:00 PM London – The Bank of England cuts the benchmark interest rate to 5%.[/R]

Stocks in London fell after BOE slashed its key interest rate raising fears of the country’s economic outlook. The negative sentiment in the retail sector also influenced investor sentiment.

In London trading FTSE 100 declined 0.31% or 18.8 to 5,965.10.

Of the FTSE 100 stocks 37 gained, 62 declined and 3 were unchanged. Alliance & Leicester led decliners in the FTSE 100 index shares with a drop of 5.80% on speculation conditions will deteriorate in the home lending markets.

Other retail lenders fell as well. Standard Chartered declined 2.15%, HBOS slipped 1.90% and Royal Bank of Scotland dropped 1.90%.

Bank of England lowers key rate to 5%

The Bank of England reported on its Web site today that the Monetary Policy Committee has elected to cut the key rate by a quarter percentage point to 5% to meet the 2% target for CPI inflation in the medium term.

In a statement, Committee said it expects inflation to further increase this year as a result of higher energy costs and food prices. CPI inflation rose 2.5% in February.

Also the bank added that it slashed the key rate to balance the risks of rising inflation and falling home prices.

The central bank noted, “In the Committee’s judgment, the balance of these risks to the inflation outlook in the medium term justifies a cut in bank rate this month. Credit conditions have tightened and the availability of credit appears to be worsening. While the recent depreciation in sterling will support net exports, the prospects for output growth abroad have deteriorated.”

ECB keeps rate on hold

The European Central Bank today left the euro zone interest rates unchanged at 4% in line with market forecasts as fears on rise in inflation persist and wage markets are operating at near capacity.

Gainers & Losers

Eurasian Natural led advancers in the FTSE 100 index shares with a rise of 6.69% followed by rises in British Energy of 5.42%, in Capita Group of 2.57%, in British Airways Plc of 2.25%, and Enterprise Inns of 1.76%.

British Energy rose on Financial Times reports RWE AG made a £11 billion or 700 pence per share takeover bid of the company.

Alliance & Leicester led decliners in the FTSE 100 index share with a drop of 5.80% followed by losses in ICAP Plc of 4.52%, in Hammerson Plc of 4%, in London Stock Exchange of 3.56%, and Schroders Plc of 3.53%.

Hammerson fell after the Bank of England cut its benchmark interest rate by a quarter percentage point. British Land Co. also fell 2.95% on the news.

Retailers declined after consumer electronics retailer DSG International slashed its earnings forecast for the second time this year. The company forecasted that pretax profit before some items will be in the range of £200 million to £210 million for the year ended April 2008 compared to analysts’ estimate of £235 million.

Kingfisher chief executive Ian Cheshire said conditions are expected to be difficult this year. Kingfisher fell 2.61%, Sainsbury Plc shed 2.81% and Next Plc plunged 2.23%.

Company news

Bloomberg news reported yesterday that Blackstone Group LP and CVC Capital Partners Ltd. are jointly interested in buying a 29.9% in Mitchells & Butlers Plc.