By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- The U.K.'s FTSE 100 index held on to
gains and was on track for the highest close in almost three weeks
on Thursday, after the Bank of England left its monetary policy
unchanged, as expected.
The benchmark gained 0.4% to 6,496.32, on course for a second
day of gains.
The index stayed in positive territory in midday trade after the
BOE said it left its key interest rate at a record low of 0.5% and
made no changes to its 375-billion-pound ($585 billion)
asset-purchase program. The bank issued no statement alongside its
rate decision.
The central bank has said it aims to keep rates low at least
until the U.K. unemployment rate drops below 7%, which it doesn't
expect will happen until 2016. After a string of encouraging data
from the U.K., however, financial markets worry that a solid
improvement in the economy will trigger a rate hike before
that.
"Over the past couple of months, the [Monetary Policy Committee]
has insisted that the pace of tightening implied by longer-term
market interest rates is unwarranted," said Philip Shaw, chief
economist at Investec Securities, said in a note.
"Indeed since early July, when the MPC first made a statement
publicizing its view, the yield curve has steepened further and is
now pricing in the first hike in the bank rate towards the end of
2014. These slightly more restrictive monetary conditions could
tempt some members of the committee into voting for more asset
purchases," he added.
The British pound rose against other major currencies after the
rate decision, with the U.K. currency (GBPUSD) changing hands at
$1.5653, up from $1.5628 on late Wednesday. Sterling traded as low
as $1.5589 earlier in the day, according to FactSet.
Attention now turns to the European Central Bank and its rate
decision, due at 12:45 p.m. in London, or 7:45 a.m. Eastern Time,
followed by ECB President Mario Draghi's monthly news conference at
1:30 p.m. London time.
Most stocks traded in positive territory, with InterContinental
Hotels Group PLC among major movers. The hotels operator gained 2%
after UBS lifted the firm to buy from neutral, with the analysts
citing improvements in a number of areas of concern and recent
share-price weakness as the main reasons for the upgrade.
In the same vein, Marks & Spencer Group PLC rose 3.2% after
HSBC lifted the retailer to overweight from neutral.
Banks were also among the notable movers in London. Shares of
Lloyds Banking Group PLC (LYG) rose 2.9%, Royal Bank of Scotland
Group PLC (RBS) gained 1.9%, and heavyweight HSBC Holdings PLC
(HBC) picked up 1.6%.
On a more downbeat note, shares of GlaxoSmithKline PLC fell 1.3%
after the drug maker said its cancer drug MAGE-A3 missed a trial
goal.
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