BUSINESS LIVE BofE cuts base rate; FTSE record high; AstraZeneca flags China fine

Simon Dangoor, head of fixed income macro strategies at Goldman Sachs Asset Management:

‘Amid a stagnant economy and a worsening labour market, the BoE delivered the anticipated 25bps cut (7-2 vote with Mann and Dhingra surprisingly voted for 50bps cut), with a dovish tone and vote.

‘Despite the looming inflation risks, the BoE has maintained its “gradual” easing guidance.

‘We foresee the BoE continuing its quarterly easing pace through the uncertain period in H1 but accelerating in H2 when dust settles, with a total of five cuts this year.’

Neil Birrell, chief investment officer at Premier Miton Investors:

‘The Bank of England cut its base rate to give the economy a boost that is much needed.

‘The fact that two members voted for a 0.5% cut is telling, clearly showing concern over the parlous state of economic growth, which is not something the government will appreciate.

‘With growth under threat and inflation remaining higher than hoped, that provides a combination that is likely to see the word “stagflation” being banded around.’

The Bank of England’s latest monetary report identified a slowdown in underlying growth at the end of 2024 and forecast further deceleration ‘into the start of this year’.

GDP growth is projected to pick up to 0.1 per cent in 2025 Q1, but that is 0.3 percentage points weaker than expected at the time of the November Report.

The bank said the weakening in economic activity has been ‘associated with a deterioration in business confidence’, and weaker household spending and businesses investment intentions.

It added: ‘The current weakness in GDP is judged to reflect not only a slowdown in demand but also a degree of weakening in supply growth over the past year.’

Marion Amiot, head of climate economics & European economist at S&P Global Ratings:

‘Although activity is softening, there is no reason for the BOE to rush to more cuts.

‘The most hawkish members of the MPC will want to see more slack opening up in the economy to believe elevated inflationary pressures are moderating. In the short term, moderation in pay growth will also be limited by the 6.7% minimum wage increase in April, which will put pressure on companies’ to raise wages along the salary scale on top of absorbing higher employee contributions.

‘Given we expect household spending to strengthen, companies will have some ability to pass on rising costs, thereby putting prices up.

‘Looking forward, we also expect the BOE to monitor more closely how US developments affect financial conditions in the UK, either via the correlation of UK 10 year yields with the US, or the potential inflationary impacts of the weakening sterling against the dollar as the interest rate differential with the Fed grows’

The Bank of England’s Monetary Policy Committee has voted to cut base rate by 25 basis points to 4.5 per cent.

Policymakers voted for a 25bps cut by a majority of 7–2, with the two dissenters prefering a bigger 50bps cut to 4.25 per cent.

The bank said: ‘There has been substantial progress on disinflation over the past two years, as previous external shocks have receded, and as the restrictive stance of monetary policy has curbed second-round effects and stabilised longer-term inflation expectations.

‘GDP growth has been weaker than expected at the time of the November Monetary Policy Report, and indicators of business and consumer confidence have declined. GDP growth is expected to pick up from the middle of this year.’

The FTSE 100 is up 1.3 per cent in late morning trading, reaching a new record high.

The index is lifted by shares of AstraZeneca after upbeat results, and ahead of an anticipated rate cut from the Bank of England later in the day.

AstraZeneca shares up 5.1 per cent and set for their best day since April 2024, driving the FTSE 350 pharma and biotech index 3.4 per cent to an over three-month high.

The drugmaker’s update on a likely fine in China reassured investors the business impact would be minimal, while it reported fourth-quarter earnings slightly above analysts’ estimates.

All major subsectors are in the green with industrial metal miners rising 3.6 per cen, led by a 13.6 per cent jump in Ferrexpo, and a 6 per cent gain in Anglo American after its fourth-quarter production report.

Anglo American was also the biggest FTSE 100 gainer.

Meanwhile, focus was squarely on the Bank of England, which is expected to ease borrowing costs by 25 basis points later in the day.

Base rate currently stands at 4.75 per cent, one of the highest among wealthier economies, with policymakers grappling to balance stimulating economic growth with persistent inflation.

Kelly Boorman, National Head of Construction at RSM UK:

‘The headline construction PMI saw a sharp fall in January, continuing the downward trend seen at the end of 2024.

‘The latest downtick comes amidst falls across the board, demonstrating a loss of confidence and increased uncertainty post-Budget, as well as the usual seasonal slowdown expected at the start of Q1.

‘Adverse weather conditions including Storm Eowyn also brought construction activity to a temporary halt.

‘The fall in civil engineering activity further reflects prolonged sector nervousness and scaling down on works, as businesses are waiting on government to commit funding for infrastructure projects in the upcoming Spending Review.

‘As a labour-intensive industry, construction is also bracing for post-Budget headwinds including rises to employers’ National Insurance contributions which could worsen labour shortages. It’s therefore unsurprising to see a slowdown in construction activity, specifically housing which has the added complexity of changing mortgage rates and the removal of Help to Buy, leading housebuilders to reduce their volumes to avoid stockpiling.

‘It’s going to be a bumpy few quarters, but housebuilders should remain optimistic towards housing volumes after Q2 2025, anticipating increased demand as government looks to realise its mandatory targets.

‘The added employment costs may also encourage businesses to invest in technology to bridge the labour gap and move towards modern methods of construction.’

Mining giant Anglo American has cut forecasts for its rough diamond output over the next two years, as demand for the stones continues to wane.

Anglo told investors on Thursday its rough diamond production plummeted 26 per cent in 2024 to 24.7million carats, meeting the lower end of its guidance range.

It now expects to mine 20million to 23million carats in 2025, down from previous forecasts of 30million to 33million, as demand remains low and inventories high.

The FTSE 100 is up by more than 1 per cent in early trading, tracking record highs as investors bet the Bank of England will cut interest rates later today.

Miners Anglo American, Rio Tinto and Antofagasta are among the top risers, with each adding more than 4 per cent, while consumer-sensitive stocks also gain ground.

Gilt yields and the pound are trading lower ahead of the bank’s midday meeting, which is expected to see a 25 basis point cut to 4.5 per cent.

Last year was another mixed bag for European equity markets, where returns continued to lag US peers supercharged by the artificial intelligence revolution.

The MSCI Europe ex-UK index delivered an annual return of 7.7 per cent in 2024, beating the FTSE 100’s rise of 5.7 per cent but trailing the MSCI World’s showing of 27.15 per cent.

Two European oil firms yesterday signalled a pivot back to fossil fuels as the industry retreats from renewables.

Norwegian state-backed group Equinor cut its green targets to boost shareholder value. And France’s TotalEnergies will invest less in low-carbon projects.

The boss of pharma giant GSK has said the Government must ‘step up’ to stop Britain’s drugs industry being overtaken by foreign rivals.

Chief executive Emma Walmsley said ministers must work with the sector to boost investment amid growing concerns about doing business in the UK.

Mark Crouch, market analyst at eToro:

‘Compass Group is coming off a stellar year, with earnings growth soaring for the British catering giant.

‘Despite facing inflationary pressures and rising costs, Compass Group’s efficiency in implementing cost-saving initiatives has allowed the business to protect its profit margins, drive up earnings and, in turn, boost its share price, which has more than trebled since the pandemic.

‘Compass Group’s rapid growth in Europe, and particularly in North America, has been driven by a notable uptick in employees returning to the office. As high street food prices hit record levels, many employees have opted to dine at the company’s on-site canteens, fueling demand for its services.’

Catering group Compass has reported first-quarter organic revenue growth of 9.2 per cent, supported by strength across its markets, especially North America.

The world’s largest food catering firm, which serves offices, hospitals and universities in about 30 markets, retained its annual outlook and said all regions and sectors performed well in the final three months of 2024.

The London-listed firm has been benefiting from the trend of global firms requiring employees to return to office, boosting office canteen spending, as cost-conscious employees preferred eating in canteens over pricier high-street restaurants.

‘We are an even more focused business and are leveraging investments in capex and M&A to support future growth,’ Compass said.

Sheena Berry, healthcare analyst at Quilter Cheviot:

‘China has proven to be an overhang on the stock following the fraud investigations of several individuals, and questions remain on exactly what impact this might have on operations in China.

‘Sales declined 3% in the region, largely as a result of lower rates of seasonal respiratory viral infections and tightening hospital budgets. While the import tax allegation is certainly a headline generating blemish on the company, it appears manageable.

‘Looking ahead, 2025 guidance implies another year of solid growth is anticipated by management. AstraZeneca is guiding to high single digit total revenue growth in 2025, with earnings per share expected to increase to low double digits.

‘2025 is expected to be a catalyst rich year, and this should help provide investors with confidence in the group’s $80bn revenue ambition in 2030.’

Defence group Babcock has hiked revenue expectations for the year on the back of strength in its nuclear and marine segments.

The group expects to post around £4.9billion pounds in sales for the year, compared to analyst forecasts of approximately £4.67billion.

Boss David Lockwood said: ‘Today’s announcement demonstrates that successful execution of our strategy is continuing to deliver value for all our stakeholders.

‘Our engineering skills and know-how are in ever greater demand and with significant opportunities before us, I look forward to further profitable growth.’

AstraZeneca faces a potential fine over unpaid taxes in China, the drugmaker told investors this morning.

The FTSE 100 firm has received a notice in China over unpaid taxes related to the import of two cancer therapies.

It comes at AstraZeneca continues to gauge the impact of probes into certain executives and activities in the key market.

Last December, AstraZeneca named Iskra Reic as its new international executive vice president, who took over from Leon Wang in its efforts to stabilise its operations in China, after Wang was detained by Chinese authorities in October.

A fine of between one and five times the unpaid tax amount of $0.9million may be levied if the company is found liable.

It came as the group reported fourth-quarter earnings and forecast 2025 sales above analyst expectations.

The Bank of England’s Monetary Policy Committee will reveal its decision on the direction of interest rates later today.

Markets are firmly pricing a 25 basis point base rate cut to 4.5 per cent and investors be looking closely at the bank’s commentary for clues as to the future of monetary policy.

Peder Beck-Friis, economist at Pimco, said:.

‘Looking ahead, we see room for deeper cuts than what financial markets expect. Trade uncertainty is rising, labour demand is falling, fiscal policy is tight, and the policy rate is well above our neutral estimate of 2 to 3 per cent.

‘While inflation will likely rise in the coming quarters, the main driver—the national insurance hike—is a one-time tax shock that central banks typically look through. If wage growth falls and the labour market weakens, we expect the Monetary Policy Committee to look through any short-term price pressures and instead focus on the medium-term outlook.

‘Recent weeks have seen a significant decline in gilt yields. We think gilts remain attractive at their current levels.’