UK Rates on Hold; Unilever Surges, Lloyds Falls

123jump.com Staff
07 May, 2009
New York City

UK stocks closed flat after the Bank of England left its key rate unchanged and the ECB lowered its rate to 1%. The Bank of England said that it will increase its purchase of government debt by

[R]8:00 PM London – UK stocks closed flat after the Bank of England left its key rate unchanged and the ECB lowered its rate to 1%. The Bank of England said that it will increase its purchase of government debt by £50 billion. Lloyds declined sharply and dragged other banks lower on estimate of higher loan losses.[/R]

The European Central Bank lowered its key rate by 0.25% to 1% and the Bank of England left its key rate unchanged to 0.5%.

The central banks around the world have been lowering rate as economies shrink, unemployment rises and investors confidence declines.

European nations and UK are battling falling prices and declining demand and central bankers are focused on risks of deflation and not inflation at this time. However, record low rates will contribute to the inflationary forces if they remain low longer than they should.

The Bank of England also said that it will increase its government debt purchase plan by £50 billion to £125 billion pounds. The move was applauded by the bond buyers because it provided clarity to how much the central bank is willing to spend its new printed money but inflation watchers were surprised.

The pound fell immediately against the dollar and euro. The pound traded as low as 89.26 pence to a euro and dropped as low as $1.5051.

The Bank of England left its key lending rate to the three decade low and will continue its program of buying government debt.

Gainers & Losers

Unilever NV surged 9.8% to 1,443 pence after the company reported first quarter sales increase of 4.8% excluding acquisition and currency adjustments. The gross revenues in the quarter fell 1% to 9.505 billion euros and net income declined 43% to 803 million euros and earnings per share fell 44% to 26 euro cents from a year ago quarter.

Diageo Plc increased 3.1% to 881 pence after it reiterated annual profit outlook. The news was first reported on Bloomberg News.

Lloyds dropped 14% to 97 pence after it reported that bad loans are increasing and Barclays Plc declined 4.3% to 275 pence after the bank estimated bad debt provision may increase 50% in the current year. HSBC increased 3% to 555 pence.

Rexam Plc decline 6.6% to 305.25 pence after it indicated one-time restructuring charge of 40 million pounds of which 35 million pounds will be cash costs in plastics division as volumes have declined 10%. The company is also on track to renegotiate the 775 million pound credit facility expiring in 2010.

FTSE 100 Index Movers

Of the stocks in the FTSE index, 48 increased, 52 declined and 2 were unchanged.

Lloyds Banking Group led decliners in the index with a loss of 14.3% followed by losses in Royal Bank of Scotland of 9%, in Next Plc, 6.7%, in Rexam Plc of 6.6% and in Vodafone Group of 4.9%.

Legal & General Group led gainers in the FTSE 100 index with a rise of 10% followed by increase in Unilever Plc of 9.8%, in Kazakhmys Plc of 8%, in Liberty Plc, in ICAP Plc of 4.6%, in Pennon Group Plc of 4.3%.

Europe Markets Review

In London FTSE 100 Index closed higher 2.19 or 0.05% to 4,398.68, in Paris CAC 40 Index decreased 31.99 or 0.97% to close at 3,251.52 and in Frankfurt DAX index lower 76.61 or 1.57% to close at 4,804.10. In Zurich trading SMI increased 6.37 or 0.12% to close at 5,325.63.