By Sara Sjolin, MarketWatch
LONDON (MarketWatch) — U.K. stocks extended losses on Wednesday, with banks and miners leading the way south, after the Bank of England said will keep interest rates at historic lows until unemployment falls, but wasn’t as dovish as some had hoped.
The benchmark UK:UKX -1.03% lost 0.8% to 6,549.08, building on a 0.2% loss from Tuesday.
The major focal point in London in Wednesday’s trade was the first inflation report from the Bank of England with Gov. Mark Carney at the helm. Unveiling a new strategy, the BOE said its key lending rate will remain at a record low of 0.5% until the U.K.’s unemployment rate drops to 7%.
The pound GBPUSD +1.0528% initially tumbled to $1.5196, before recovering to $1.5472.
Marcin Budkiewicz, strategist on rates and foreign exchange at TD Securities, said in a note that the inflation report was “dovish,” noting the BOE said “short term market interest rates imply faster withdrawal of stimulus than appears likely”.
“The forward guidance stated that until the unemployment rate falls from its current 7.8% level to 7%, the MPC expects not to contemplate raising Bank Rate, and hitting that 7% level is not a trigger for rate hikes, but would simply trigger a reassessment of policy,“ Budkiewicz said in a note.
‘However, the caveats that inflation expectations remain anchored, financial stability not be at risk, and most importantly inflation is not forecast to rise above 2.5% 18-24 months out, has left the market angsting that the BoE may hit the inflation knock-out before they reach the unemployment threshold,” he added.
Among notable movers, shares of TUI Travel PLC UK:TT -4.96% slid nearly 5% after the travel agency reported an operating loss for the nine-month period to June 30.
Some banks were lower after the BOE guidance and inflation report. Shares of heavyweight HSBC Holdings PLC HBC -0.67% UK:HSBA -1.68% fell 1.3%, while Lloyds Banking Group PLC UK:LLOY -0.65% LYG +0.39% lost nearly 1%.
Shares of Randgold Resources Ltd. UK:RRS -1.74% GOLD +1.18% shaved off 3.6% after the gold miner reported second-quarter profit below expectations. Other miners were also lower as most metals prices declined. Heavyweight Rio Tinto PLC UK:RIO -1.47% AU:RIO -2.10% RIO -0.04% dropped 2% and BHP Billiton PLC UK:BLT -1.47% BHP -0.66% AU:BHP -2.02% fell 1.3%.
On a more upbeat note, shares of Old Mutual PLC UK:OML +3.38% jumped 4% after the insurance firm reported a rise in first-half pretax profit and funds under management.
Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.
