Market update - 4 September

The FTSE 100 was up 24.4 points at 5524.1, still behind last week’s highs, while the FTSE 250 was down 16.4 points at 9353.3 at 12.08 pm this morning. There was little surprise among traders at the Bank of England’s decision to keep UK interest rates on hold at 5 per cent.

“Despite the very real danger of recession, it was always likely to prove premature for the Bank of England to cut interest rates, given well above-target and rising inflation, still significant medium-term inflation risks and the weakness of the pound,” said Howard Archer, chief European & UK economist at Global Insight.

“The Bank continues to face a very challenging path on interest rates, given the recession and inflation risks. We now lean towards the view that interest rates to be cut from 5.00 per cent to 4.75 per cent before the end of 2008, with a move most likely in November. This reflects our expectation that the economy will contract modestly in the second half of the year. Furthermore, we expect the Bank of England to cut interest rates significantly further to 3.50 per cent in 2009 as extended muted demand and rising unemployment contains and then increasingly dilutes underlying inflationary pressures. Meanwhile, the recent marked retreat in oil and commodity prices will help matters,” he added.

Moving up

Unilever was the strongest on the FTSE 100, up 97p at 1587p, after announcing its intention to appoint Nestlé’s Paul Polman as group chief executive after current boss Patrick Cescau retires at the end of this year.

Whitbread, up 44p at 1164p, provided a measure of support for consumer stocks after positing a positive sales update for the 24 weeks to the middle of August: the hospitality group revealed a 7 per cent hike in like-for-like sales thanks to a strong performance at its Premier Inns budget hotel chain.

Reacting to the news, analysts reiterated their confidence in the company, with Investec lauding what it called “another Premier performance”.

“The turn around in pub restaurants is gathering pace and the defensive characteristics of Premier Inns underpin our 2009 estimates (for earnings per share growth of 23 per cent), with further cost savings benefiting [the numbers in] 2010. With a strong balance sheet, good structural growth prospects, high barriers to entry and conservative estimates, Whitbread remains one of our key sector picks,” the broker said, re-stating its “buy” recommendation for the stock.

Among more speculative features, natural gas giant BG advanced to 1097p, up 50p, following rumours of bid interest from Exxon Mobil.

Carphone Warehouse was also firm, up 0.2p at 199.5p, following speculation that the company was set to announce of a de-merger of operations into separate telecoms and retail divisions.

Moving down

Informa fell to the bottom of the FTSE 250, down 7.44 per cent or 30.25p at 420p, after speculation mounted that the Providence Equity Partners-led consortium had lowered the amount it was willing to pay to acquire the company. Also this morning, Blackstone emerged as the newest member of the consortium, replacing Hellman & Friedman.

Elsewhere, the housing sector was mixed following news of the Bank of England’s interest rate decision and Barratt Developments traded lower, down 2.25p at 151.75p, while Taylor Wimpey gained 2.75p to 58p. Bovis Homes was down 11p at 456.5p and Bellway was up 6.5p at 674.5p.