FTSE falls after BoE vote fuels expectations of Aug rate hike

MILAN: Britain's top share index fell on Thursday as sterling bounced from seven-month lows following a Bank of England policy vote that bolstered expectations of a rate hike in August.

As widely expected, the BoE kept rates unchanged but its chief economist unexpectedly joined the minority of policymakers calling for a hike.

Its Monetary Policy Committee (MPC) voted 6-3 to keep rates at 0.5 percent. Economists in a Reuters poll had said they expected a continued 7-2 split.

The surprise pushed sterling higher after an earlier drop. That in turn sent the FTSE 100 down and the export-oriented index closed 0.9 percent lower.

"Sterling jumped after an unexpectedly hawkish vote from the Bank of England points to rates likely rising this summer rather than at the year end," said Markets.com analyst Neil Wilson.

"Is August too soon to raise rates? Maybe, but the 6-3 vote on the MPC suggests the central bank is a bit closer to a hike than markets had expected."

British housebuilders were hit hard by the prospect of higher interest rates.

"The housebuilders helped drag the FTSE 100 lower today, with a surprise hawkish shift from the BoE driving fears of rising mortgage costs and falling affordability", wrote Joshua Mahony, a market analyst at IG.

Barratt Development and Persimmon both fell 3.7 percent, while Taylor Wimpey lost 3.1 percent.

Financials and energy stocks weighed on the FTSE as expectations of an OPEC deal to raise output sent oil prices tumbling.

Royal Dutch Shell fell 1.1 percent and BP 0.9 percent.

Sky rose for a second day, up 1.8 percent at a two-month high, after Disney raised its offer for the bulk of Twenty-First Century Fox's entertainment assets, including a 39 percent stake in the UK-based pay-TV company.

The move has raised speculation Fox will in turn raise its  bid for Sky, to top a bid from Comcast, although Liberum analyst Ian Whittaker said the room for further upside may be limited.

"We do not think it will be bid more than 10 percent above Comcast's bid, implying 1375p, which is where the shares are now," he said.