City braced for rate cut as construction data and banking woes unsettle markets

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BoE meets tomorrow amid fresh warnings on UK growth (Source: Getty)

The FTSE 100 fell to a two-week low of 6,645.40 yesterday, spooked by a double whammy of gloomy UK construction data and faltering bank stocks.

Official data shows that UK construction has shrunk at its fastest pace in seven years. Markets are now bracing themselves for tomorrow’s Bank of England policy meeting, at which governor Mark Carney is expected to unveil a stimulus package. Many economists are predicting that interest rates could be cut to a 300-year low.

“After a week or so of relative stasis the markets found themselves on the wrong side of the green/red divide,” said SpreadEx’s Connor Campbell. He added: “Grazing a two-week low the FTSE has fallen over 40 points following the construction PMI reveal, despite the reading being a tad better than expected at 45.9 against the 44.2 forecast.

That is still, however, lower than last month’s 46.0, and leaves the construction sector in its worst shape since the financial crisis.”

Shares in housebuilders including Taylor Wimpey and Persimmon dipped on the PMI’s release before recovering. Construction material provider Travis Perkins led the FTSE 100 fallers after it said in a trading update that it had been hit by Brexit. It ended the day just 0.7 per cent lower at 1,533p. UK bank stocks also fell after the City watchdog announced that it was pushing back its deadline for payment protection insurance (PPI) complaints.

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The Financial Conduct Authority said it plans to set a cut-off point for PPI claims that will fall by the end of June 2019 at the latest. Banks had been expecting a 2018 deadline but the watchdog wants to run a public awareness campaign before bringing PPI claims to an end. Barclays shares were down 3.5 per cent at the market close, at 146p, while RBS shares fell 1.7 per cent to finish the day at 185.71p.

Today, new forecasts from a leading economic think tank will increase the pressure on the Bank of England ahead of tomorrow's crunch meeting. The National Institute of Economic and Social Research (Niesr) will say that GDP is expected to grow by 1.7 per cent in 2016, slowing to just one per cent in 2017. It expects GDP to decline by 0.2 per cent in the third quarter of this year.

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“We expect the UK to experience a marked economic slowdown in the second half of this year and throughout 2017. There is an evens chance of a ‘technical’ recession in the next 18 months, while there is an elevated risk of further deterioration in the near term,” said Simon Kirby, head of macroeconomic modelling and forecasting at Niesr.

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