Carney’s dovish talk helps drive FTSE 100 higher

BRITAINS’ top share index posted its biggest gain for 20 months yesterday, boosted by cyclical financial, oil and mining stocks after the Bank of England and the European Central Bank signalled extended periods of monetary stimulus.

Both central banks left interest rates unchanged, but gave unprecedented guidance about their policy direction, making clear there were no near-term prospects of interest rate rises.

Banks, oils and miners hoisted the FTSE 100 up 3.1 per cent to 6,421.67 points. That marked its highest close since 4 June and its biggest daily percentage gain since November 2011, though volumes were thinned by the Independence Day holiday in the United States, leaving the market more susceptible to sharp swings.

“There’s no reason why these markets shouldn’t rally back up to their May highs,” said Mark Priest, trader at ETX Capital, said. The UK benchmark is some 7 per cent from this level.

Just four days after Canadian Mark Carney took over as Bank of England governor, he surprised markets by persuading fellow policymakers to issue a statement to show it was in no rush to raise rates, given Britain’s weak economic recovery.

“The implied rise in the expected future path of Bank Rate was not warranted by the recent developments in the domestic economy,” the Monetary Policy Committee said, showing its concern about a recent jump in bond yields in financial markets.

Sterling slumped and British share and bond prices rose after the statement, which also suggested that more detailed guidance on monetary policy might come as soon as next month.

Cyclical shares tend to be the most sensitive to economic developments.

Among individual movers, low-cost carrier easyJet rose 3.6 per cent after announcing a 1.9 per cent increase in passenger numbers in June.

On the second-tier market housebuilders rose, with Taylor Wimpey, Galliford Try and Redrow saying they would meet or beat their full-year expectations.

The FTSE 100 has this week traded in a near 250-point range, buffeted by unrest in Egypt and resurfacing debt concerns in Greece and Portugal as well as yesterday’s central bank news.

“Because volume is low you're more exposed to the risk,” Jeremy Lyon, associate at Old Park Lane Capital, said.

Lyon favours utility Centrica, oil majors Royal Dutch Shell and BP, and consumer goods firm Unilever.