BOE, ECB Leave Rates Unchanged

123jump.com Staff
05 Jun, 2008
New York City

The Bank of England and the European Central Bank left the rates unchanged at 5% and 4% respectively. The rising inflation in the region has left central bankers worried. Unlike the Fed in the U.S., central bankers in Europe are more focused on inflation. Separately, retailer Wm Morrison reported 7% rise in sales in the first quarter but home prices fell in May. Stocks in London trading rose with the FTSE 100 index gaining 0.4%.

[R]1:00PM New York, 5:00PM London – The ECB and Bank of England left the rates unchanged. Lloyds TSB Group takes over loans from Northern Rock.[/R]

London stock averages rose led by retailers after Wm Morrison Supermarkets reported a 7% rise in underlying sales in the first quarter. However stock gains were trimmed by news that house prices fell in May.

Market sentiment

In London trading FTSE 100 rose 0.42% or 25.2 at 5,995.

Of the 103 FTSE 100 stocks 54 gained, 46 declined, and 2 were unchanged. Home Retail Group led advancers in the index shares with a rise of 5.7% after Wm Morrison reported first quarter sales increased 7%.

Bank of England, ECB keep rates on hold

The Bank of England said that the Monetary Policy Committee today voted to maintain the official bank rate paid on commercial bank reserves at 5.0%. The minutes of the meeting will be published at 9.30am on Wednesday June 18. Central bankers in the UK and the US have talked tough on inflation but done little to combat a sharp rise in inflation. Only the ECB has shown some willingness to contain inflation.

The European Central Bank kept its benchmark rate at 4% on the fears of rising inflationary. The ECB President Trichet comments to the press after the rate decision indicated that interest rate may rise at the next meeting. The euro after the comments jumped against pound and dollar on the prospect of higher interest rates.

House prices fall 2.4% to £184,111 in May

HBOS Plc reported today in its Halifax Price Index published on its website that house prices declined 2.4% to £184,111 from the previous month and plunged 3.8% from the same period a year ago in May.

The report noted, “Caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability.”

HBOS also observed that high employment levels, low interest rates and a shortage of new homes support housing valuations. Employment rose by 117,000 in the quarter to March compared with the previous quarter and currently stands at a record high 29.54 million.

Commented HBOS chief economist Martin Ellis,“House prices fell by 2.4% in May. Price falls should be measured against the significant gains in recent years. The average UK house price rose by more than £88,000, or 79%, between August 2002 and August 2007.

The decline in prices is caused by the difficulties created for potential house purchasers by the rapid rise in house prices in the last few years, a squeeze on spending power and the reduction in credit availability. These factors have curbed housing demand. High employment levels, low interest rates and a shortage of new homes support housing valuations.""""

Gainers & Losers

Home Retail Group led advancers in the FTSE 100 index shares with a rise of 5.6% followed by rises in HBOS Plc of 5.14%, in Experian Group of 4.37%, in British Airways Plc of 4.31%, in Royal Bank of Scotland of 3.81%.

Home Retail Group gained as Wm Morrison reported that the company’s first quarter sales jumped 7%.

Other retailers also increased. Marks & Spencer edged up 3.02%, Kingfisher increased 2.65% and Next gained 2.42%.

Johnson Matthey led decliners in the FTSE 100 stocks with a drop of 3.73% followed by losses in British Energy of 3.30%, in Alliance & Leicester of 3.15%, in Lonmin Plc of 3.01%, and Anglo America Plc of 2.85%.

Johnson Matthey fell despite the company reporting a profit increase. Commodity stocks also declined after metal prices dropped. Kazakhmys Plc fell 2.69%.

Lloyds takes over loans from Northern Rock

Lloyds TSB Group reported that the bank will take over a huge portion of Northern Rocks 180,000 fixed-rate mortgages, a development that will help the lender to reduce its loan book and repay its £24 billion debt to the Bank of England.