FTSE 100 jumps as Bank of England hikes rates

FTSE NEWS

The FTSE 100 jumped on Thursday (16 December) as the Bank of England announced it was hiking the bank rate from 0.1% to 0.25%. The UK’s top index of stocks finished the session up 1.25% at 7,260.61.

• On Monday (20 December) Zoopla publishes its latest house price index, giving insights into the state of the UK housing market.
• On Tuesday (21 December) the Confederation of British Industry publishes its Distributive Trades survey, a look at the health of the retail, wholesaling and motor trade across the UK.
• The Office for National Statistics (ONS) publishes its consumer trends, Q3 data on Wednesday (22 December).
• On Thursday (23 December) the Society of Motor Manufacturers and Traders publishes its UK monthly automotive manufacturing figures, giving a look at the health of the motoring sector.
• On Friday (24 December), UK markets close at 12.30pm for Christmas.

SECTOR IN FOCUS

The banking sector stand to benefit more than most thanks to the Bank of England’s hike in interest rates from 0.1% to 0.25% Despite the modest increase, the hike could see banks’ balance sheets buffered quickly.

In the wake of the Bank of England’s announcement they didn’t waste time either, with Santander (BNC) the first out of the blocks announcing it was passing on the rate rises straight onto its variable rate mortgage customers. Savers however will also see the base rate passed onto their accounts.

Shares in major listed banks all popped on the announcement, with Barclays (BARC), Lloyds Bank (LLOY), NatWest (NWG) and Virgin Money (VMUK) all ending the day up on Thursday (16 December).

Banks’ share prices have struggled for years in a low interest environment. But that could be set to change as inflation moves beyond being ‘transitory’ to persistent. In the US, the Federal Reserve has announced it intends to hike rates three times in 2022, with five more in 2023 and 2024.

With the Bank of England now moving faster than the Fed, banks could soon see their profit margins healthier than at any time since the Great Financial Crisis.

ECONOMIC UPDATE

The Bank of England has taken the extraordinary decision to hike interest rates, despite widespread fears over the spread of the Omicron variant in the UK.

The Bank has hiked its base rate from 0.1% - the lowest level ever – to 0.25%, where it stood for much of the last decade after the financial crisis.

The Bank in its meeting notes from the Monetary Policy Committee (MPC) said it had to act on the soaring levels of inflation, which the latest Office for National Statistics (ONS) reading showed rising at 5.1% - the highest level in over a decade.

Bank watchers suspected the MPC would hold fire thanks to uncertainty around the economic impact of the Omicron variant, but the committee was firm, deciding 8-1 to hike. It said the medium-term considerations over inflation and employment far outweighed short term worries over the virus.

FUND WATCH

Looking for a fund which delivers an income with reasonable capital growth? You might want to consider TB Evenlode Income B Inc (GB00BD0B7D55). This actively managed fund looks to provide a blend of income and capital growth by investing the stocks and bonds of UK companies. It has a yield of 2.50% and has grown 56.4% over five years, with an OCF of 0.87%.

ETF WATCH

If you’re looking for a fund that pays an income as an ETF, then iShares UK Dividend ETF GBP Dist (IUKD) might be an option. This passively managed ETF seeks to track the top 50 income paying companies in the UK. It pays a yield of 4.87% and has grown 9.13% in five years. It charges an OCF of 0.40%.

COMPANY ANNOUNCEMENTS

23 December: Media business Ascential PLC (ASCL) gives a trading update on Thursday (23 December). The firm has just announced plans to sell its MediaLink business in a $125 million sale to United Talent Agency. The firm has pencilled in 99% earnings growth in previous updates so investors will be watching for signs this is well underway. Media more generally has struggled in recent years and with Ascential heavily invested in live events and conference businesses it has had a tough time adjusting to the era of social distancing. With the Omicron variant causing widespread event cancellations this could have an impact on the company’s outlook.