LONDON MARKETS: U.K. Stocks Stay Higher After BOE Rate Decision

By Sara Sjolin, MarketWatch

LONDON (MarketWatch) -- The U.K.'s FTSE 100 index held on to gains and was on track for the highest close in almost three weeks on Thursday, after the Bank of England left its monetary policy unchanged, as expected.

The benchmark gained 0.4% to 6,496.32, on course for a second day of gains.

The index stayed in positive territory in midday trade after the BOE said it left its key interest rate at a record low of 0.5% and made no changes to its 375-billion-pound ($585 billion) asset-purchase program. The bank issued no statement alongside its rate decision.

The central bank has said it aims to keep rates low at least until the U.K. unemployment rate drops below 7%, which it doesn't expect will happen until 2016. After a string of encouraging data from the U.K., however, financial markets worry that a solid improvement in the economy will trigger a rate hike before that.

"Over the past couple of months, the [Monetary Policy Committee] has insisted that the pace of tightening implied by longer-term market interest rates is unwarranted," said Philip Shaw, chief economist at Investec Securities, said in a note.

"Indeed since early July, when the MPC first made a statement publicizing its view, the yield curve has steepened further and is now pricing in the first hike in the bank rate towards the end of 2014. These slightly more restrictive monetary conditions could tempt some members of the committee into voting for more asset purchases," he added.

The British pound rose against other major currencies after the rate decision, with the U.K. currency (GBPUSD) changing hands at $1.5653, up from $1.5628 on late Wednesday. Sterling traded as low as $1.5589 earlier in the day, according to FactSet.

Attention now turns to the European Central Bank and its rate decision, due at 12:45 p.m. in London, or 7:45 a.m. Eastern Time, followed by ECB President Mario Draghi's monthly news conference at 1:30 p.m. London time.

Most stocks traded in positive territory, with InterContinental Hotels Group PLC among major movers. The hotels operator gained 2% after UBS lifted the firm to buy from neutral, with the analysts citing improvements in a number of areas of concern and recent share-price weakness as the main reasons for the upgrade.

In the same vein, Marks & Spencer Group PLC rose 3.2% after HSBC lifted the retailer to overweight from neutral.

Banks were also among the notable movers in London. Shares of Lloyds Banking Group PLC (LYG) rose 2.9%, Royal Bank of Scotland Group PLC (RBS) gained 1.9%, and heavyweight HSBC Holdings PLC (HBC) picked up 1.6%.

On a more downbeat note, shares of GlaxoSmithKline PLC fell 1.3% after the drug maker said its cancer drug MAGE-A3 missed a trial goal.

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