By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- The U.K.'s FTSE 100 index dropped for a
fourth straight day on Wednesday, after the Bank of England said it
will keep interest rates at historic lows until unemployment falls,
but wasn't as dovish as some had hoped.
The benchmark lost 1.4% to close at 6,511.21, 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%, which it doesn't expect to happen
until late 2016. The unemployment rate currently stands at
7.8%.
The pound (GBPUSD) initially tumbled to $1.5196, before
recovering to $1.5514.
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.
Some banks were lower after the BOE guidance and inflation
report. Shares of heavyweight HSBC Holdings PLC (HBC) fell 2.2%,
while Lloyds Banking Group PLC (LYG) lost 1.1%.
Among other notable movers in London, shares of TUI Travel PLC
slid 5.2% after the travel agency reported an operating loss for
the nine-month period to June 30.
Shares of Randgold Resources Ltd. (GOLD) shaved off 1.4% after
the gold miner reported second-quarter profit below expectations.
Other miners were also lower as metals were mixed. Heavyweight Rio
Tinto PLC (RIO) dropped 1.5% and BHP Billiton PLC (BHP) fell
1.6%.
On a more upbeat note, shares of Old Mutual PLC jumped 2.9%
after the insurance firm reported a rise in first-half pretax
profit and funds under management.
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