LONDON MARKETS: FTSE 100 Falls As Rate-cut Prospects Dim

By Carla Mozee, MarketWatch

U.K. stocks fell Friday, set to lock in a loss for the week, as investors considered that further monetary stimulus by the Bank of England may just be on hold for now.

The FTSE 100 fell 0.5% to 6,952.13, with all but the consumer goods sector losing ground. The index is on track for a weekly loss of 1%, which would be the largest weekly decline in seven weeks.

The week will close with the U.K.'s better-than-expected gross domestic product figures still in mind. Third-quarter growth of 0.5% was ahead of an estimated 0.3% rate of growth. Thursday's report form the Office for National Statistics reflected the first full quarter since the U.K. voted in June to leave the European Union.

The growth rate was "about double the pace anticipated by the Bank of England," said John Wraith, head of U.K. macro rates strategy & economics at UBS, in a Friday note.

"The scale of the drop in sterling, and uncertainty over how long and to what extent it may feed through to higher inflation, led [Bank of England] Governor Carney to warn that there are limits to the [Monetary Policy Committee's] willingness to look through an overshoot of inflation. These developments seem to have ended any lingering prospect of a further cut in [the] bank rate at next week's MPC meeting," Wraith added.

However, relief about how well the economy has performed since the Brexit vote "will likely be tempered by ongoing concerns about what may lie ahead for domestic demand in the U.K. economy in 2017 and beyond," he said.

See: 'Not out of the woods yet' -- analysts play down U.K. GDP beat (http://www.marketwatch.com/story/not-out-of-the-woods-yet-analysts-downplay-uk-gdp-beat-2016-10-27)

Concern about the prospect of slowing monetary policy action by the Bank of England led to bond prices falling, pushing the yield on the 10-year gilt up by 2 basis points to 1.27% on Friday.

Read: Here's why bond yields are rising around the world (http://www.marketwatch.com/story/heres-why-bond-yields-are-rising-around-the-world-2016-10-27)

(http://www.marketwatch.com/story/heres-why-bond-yields-are-rising-around-the-world-2016-10-27)Movers: Just a handful of stocks were moving higher on the FTSE 100. Royal Bank of Scotland Group PLC (RBS.LN) (RBS.LN) was up 1.7% even as the lender said it may miss its long-term financial goals (http://www.marketwatch.com/story/rbs-reports-loss-will-miss-long-term-targets-2016-10-28) after swinging to a third-quarter net loss, in part because of a provision for U.S. legal settlements.

"On the face of it, there are some reasons to be cheerful following this latest update. Pre-tax profit is significantly higher, the capital cushion has improved once more and lending continues to grow at a fair clip," said Richard Hunter, head of equities at Wilson King Investment Management, in a note.

But "RBS has yet to emerge from the weight of misconduct fines, restructuring costs, the distraction of the sale of the Williams & Glyn unit, the specter of the Government stake and the lack of a dividend payment," Hunter added.

RBS shares are down nearly 39% over the past 12 months.

Other bank shares were mixed Friday.

HSBC Holdings PLC (HSBA.LN) (HSBA.LN) fell 1.3%, Barclays PLC (BCS) (BCS) was up 0.6%, Lloyds Banking Group (LLOY.LN) shed 0.3% and Standard Chartered (STAN.LN) was down 0.4%.

British Airways parent International Consolidated Airlines Group SA (IAG.LN) shares rose 2.7%, brushing past the company's profit warning (http://www.marketwatch.com/story/british-airways-parent-iag-cuts-earnings-outlook-2016-10-28-2485428) . Third-quarter operating profit declined, hurt by a drop in sterling after the U.K. voted to leave the European Union. But some analysts noted that operating profit for the quarter was in line with consensus estimates.

The pound was buying $1.2166 compared with $1.2173 late Thursday.

(END) Dow Jones Newswires

October 28, 2016 04:35 ET (08:35 GMT)

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