London market: A new outlook after rate rise?

FTSE 100

By Philip Sanders and Jeff Brooks

UK BONDS are expected to be little changed and stocks mixed this week as Thursday's unexpected increase in interest rates prompts investors to reassess the outlook.

Concern that rates may rise again is likely to offset economic reports which are expected to show that the economy is beginning to slow, and renewed speculation about mergers and acquisitions in the drugs industry.

"We're likely to see some consolidation in gilts next week," said John McNeill, a market strategist at Sutherlands Stockbrokers in Edinburgh. "The data should support the view that Thursday's rate rise can be reversed before too long, but plenty of people got their fingers burned last week and they'll be in no hurry to return to the market."

For the week the benchmark 10-year gilt fell, leaving its yield about 6 basis points higher at 5.75 per cent. Key economic reports this week include producer price inflation on Monday, and a survey of retail sales, on Tuesday.

Some analysts said rates may rise again before they start to come down, with wage growth unlikely to slow enough in coming months to satisfy the central bank that inflation will fall to the Government's 2.5 per cent target rate from the 3.0 per cent annual rate recorded in April.

"We neither think that [Thursday's] rate increase will tip the economy over the edge, nor lead to a sufficient moderation in private-sector earnings growth," said Ian Amstad, director of economic research at Bankers Trust International.

SmithKline Beecham, Zeneca Group and Glaxo Welcome may all extend gains on the optimism that at least one of them will be the target of a takeover bid.

"Drug stocks tend to move in fits and starts depending on the latest takeover speculation," said Tom Eyre, a fund manager at BWD Rensburg. "The gains will probably continue."

The benchmark FT-SE 100 Index rose 1.3 per cent, to 9,947.3 last week. Railtrack gained the most.

The FT-SE Tobacco Index advanced 5.8 per cent, with BAT jumping on hopes that the United States Congress won't agree on a bill to heavily tax and regulate tobacco products.

Thursday's surprise rise in interest rates is unlikely to weigh on stocks.

"The market digested the shock rate rise very, very well," Mr Eyre said. "People are saying that the moment of rates peaking has come."

Copyright IOS & Bloomberg.

Start your day with The Independent, sign up for daily news emails
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific
In this the person to restore our trust in the banks?

In this the person to restore our trust in the banks?

Dame Colette Bowe - interview
When do the creative juices dry up?

When do the creative juices dry up?

David Lodge thinks he knows
The 'Cher moment' happening across fashion just now

Fashion's Cher moment

Ageing beauty will always be more classy than all that booty
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination

Health fears over school cancer jab

Shock new Freedom of Information figures show how thousands of girls have suffered serious symptoms after routine HPV injection
Fifa President Sepp Blatter warns his opponents: 'I forgive everyone, but I don't forget'

'I forgive everyone, but I don't forget'

Fifa president Sepp Blatter issues defiant warning to opponents
Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report

Weather warning

Extreme summer temperatures will soon cause deaths of up to 1,700 more Britons a year, says government report
LSD: Speaking to volunteer users of the drug as trials get underway to see if it cures depression and addiction

High hopes for LSD

Meet the volunteer users helping to see if it cures depression and addiction
German soldier who died fighting for UK in Battle of Waterloo should be removed from museum display and given dignified funeral, say historians

Saving Private Brandt

A Belgian museum's display of the skeleton of a soldier killed at Waterloo prompts calls for him to be given a dignified funeral