Precise Investors

Friday, August 12, 2022
Stocks & Shares

FTSE 100 falls as Bank of England forecasts slow recovery


However, the bank upgraded the size of the economy’s fall which lifted the pound

The FTSE 100 has fallen into the red after the Bank of England said the British economy would be slower to recover from the coronavirus pandemic than previously forecast.

The UK blue-chip index fell 91 points, or 1.5%, to 6,015. The Bank’s monetary policy committee left interest rates unchanged at 0.1%, saying it now thought the UK economy was unlikely to surpass pre-pandemic levels by the end of 2021.

The central bank did, however, upgrade its assessment of the size of the economy’s fall in the second quarter to 20%, better than the 28% initially forecast. That helped lift the pound 0.5% higher against the dollar to $1.318.

The FTSE 100 gave up a good portion of its recent gains on Thursday morning as investors weighed the latest decision on interest rates from the Bank of England, said AJ Bell investment director Russ Mould.

The Bank unsurprisingly keeps its powder dry, probably eyeing the end of the furlough scheme as a good point to reassess given the impact this might have on household finances, he added.

Share Centre investment research analyst Helal Miah said the bank’s statement showed ‘we’re still in the early days of the economic fallout from this crisis’.

We should welcome the recovery since the trough, but far more hurt is due to come down the road as the unemployment rate nearly doubles by year end as furlough and job retention schemes come to an end by autumn, he said.

Investors face a fairly tough choice at the moment; go with safe cash equivalent products with virtually zero or negative real returns or the stock market knowing the UK and global economy is under severe strain, he said.

Miners were among the biggest fallers. Glencore (GLEN) scrapped its proposed $2.6bn dividend after it posted a net loss, also $2.6bn, in the first half of the year due to weaker commodity prices and the impact of the pandemic. The Swiss-based miner slid 6% to 184p, while Rio Tinto (RIO) dropped 4.7% to £47.24.

BAE Systems (BA) retreated 4.0% to 504p, giving up some of the gains made after restoring its dividend last week. ITV (ITV), up 1.1% at 61.6p, recovered from an early fall after results showed advertising revenue plunged 43% in the second quarter.

Aviva (AV) jumped 3.4% to 294p, as traders responded positively to a hint from its new chief executive that it could pull out of most international markets to focus its business on the UK, Ireland and Canada.

Other insurers consolidated, with Phoenix Group (PHNX) 1% firmer at 697p and Legal & General (LGEN) flat at 223p.

Mondi (MNDI) was the second strongest performer, jumping 2.4% to £14.58, as the packing company reinstated its dividend.

Among mid-caps, Serco Group (SRP) slumped 13.7% to 146p, as the outsourcing group cautioned on short-term prospects despite results showing a more than 50% jump in first-half profit.

Meggitt (MGGT)’s shares slipped to 275p, down 6.9%, as the engineering firm made a statement reassuring investors over its liquidity, in response to reports by Bloomberg that it was considering an equity raise. The company did not deny this, saying it continued to ‘review a range of trading scenarios and associated actions’.

Synthomer (SYNT) gained 8p or 2.7% to 303.4p after the polymer maker announced pre-pre-tax profits not that far down on last year and said it expected to pay its final dividend, while Aston Martin (AML) slipped 1.4% to 60.1p after an early rise in response to analysts at Deutsche Bank and Citigroup raising their target prices on the carmaker.

Hammerson (HMSO) tumbled 12.6% or 7p to 48.9p after shopping centre operator unveiled its £825m emergency fund raising. This comprises of a £551.7m rights issue and – if shareholders support that – £274m from the sale of its 50% stake in Via Outlets to the partner in its European retail joint venture.

Blue-chip rivals Land Securities (LAND) and British Land (BLND) fell 4.9% and 4%.

UK Commercial Property (UKCM) dropped 3.1p or 4.4% to 66.7p as it reported a 2.3% second quarter decline in its portfolio but maintained its quarterly dividend at the recently halved rate of 0.46p. It said rent collection had improved to 77% in the second quarter and to 74% in the current quarter.

Specialist real estate investment trusts were more robust.

Triple Point Social Housing (SOHO) firmed 0.5p to 105p after saying recent acquisitions meant its quarterly dividends were currently covered by earnings on a ‘run rate’ basis. Its shares yield 5%.

Warehouse (WHR) eased 0.3p lower to 109.7p after the ‘last mile’ distribution centre investor declared a first quarter dividend of 1.55p and said it had collected 94% of second quarter rents.

Outside property but still within ‘alternative income’ Duke Royalty (DUKE) jumped 13.7%, or 2.8p, to 23.3p after reporting an upturn in trading at its commercial borrowers and cautiously predicted rising cash revenues in coming quarters.

Pantheon International (PIN) shed 4p to £20.91 after annual results showed the private equity fund of funds grew net asset value by 4% in year to 31 May. Despite the impact of the coronavirus, it expressed confidence in its ability to generate long-term returns and expected increased deal making by its external fund managers later in the year as they started to spot opportunities in dislocated markets.


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