Britain's FTSE 100 index fell on Thursday, extending its early losses as sterling strengthened after the Bank of England sounded less concerned than expected about the domestic impact of the turmoil in global markets. The central bank's policymakers voted 8-1 to keep interest rates at a record low and judged it too early to decide whether the market upheaval sparked by China will affect Britain much. Some also said there was a risk that inflation would rise quicker than forecast.
Jeremy Batstone-Carr, market analyst at Charles Stanley, said that that while stocks fell on the news, it made sense for policymakers to bide their time before committing to lower rates for longer. "There was enough within the minutes to suggest that the Bank is keeping its powder dry... and perhaps in the coming months it might be prepared to countenance the possibility that China weakness and low commodity prices could push back the timing of its own rate hike," Batstone-Carr said.
The BoE is currently expected by markets to raise rates in mid-2016. The minutes sent sterling to a two-week high, hitting British listed stocks with international exposure and exporters. Worries over China's growth persisted after manufacturers there cut prices at the fastest rate in six years, according to its August producer price index figures, stoking deflation fears and expectations of further stimulus.
The data hit the mining sector, with BHP Billiton falling 5.9 percent and Glencore down 7.8 percent. Both stocks also suffered as they went ex-dividend. The FTSE 100 was down 1.2 percent at 6,155.81 points at the close, snapping its three-day rally. Morrisons, Britain's fourth-biggest supermarket group, fell 2.8 percent, giving up its previous day's gains, after it reported a 35 percent slump in first-half profit, its lowest level in nine years.
The UK grocer, which is engaged in a price war with rivals to stem the loss of shoppers to discounters Aldi and Lidl, said its turnaround plan will take time. On Wednesday it announced plans to sell its convenience stores to focus on improving its core larger stores. "Until we see the first signs of a retail proposition that has consumer appeal and that has been well costed, we do not anticipate margin improvements at the true underlying level," analysts at Bernstein said in a note.
Barratt Developments, the UK's largest housebuilder by volume, rose 3.3 percent. It extended the previous session's gains, made following results, and was also supported after UK surveyors doubled their forecast for house price gains this year after reporting the most widespread price increases since a mini-boom in early 2014. Positive corporate results also gave a boost to Dixons Carphone. The electrical goods and mobile phone retailer was up 1.8 percent after posting a consensus-beating 8 percent rise in first quarter underlying sales, led by a strong showing in its home market Britain.