One week of markets in one minute: Bank intervention sends shares back to year high

Intervention by the Bank of England’s Monetary Policy Committee (MPC) to offset an expected downturn in the UK economy dominated markets this week, sending equities to their highest close for over a year.

Having yesterday announced its decision to cut UK interest rates to a record low of 0.25%, and provide additional quantitative easing (QE), the MPC’s actions have injected some fresh impetus into markets, with both the FTSE 100 and the FTSE 250 finishing the week firmer having dropped for three days straight prior to Thursday’s announcement.

The FTSE 100 was up 1% on the week, finishing at 6,793 points (its highest level since July last year) while the FTSE 250 also gained around 1% to close at 17,465, back above its pre-Brexit level for the first time since the EU referendum result was announced.

Equities climbed after the MPC surpassed expectations, with the package of measures above and beyond what the market had priced in. As well as having an immediate impact on stocks, UK government bonds also saw yields fall even nearer to zero. By the end of the week, benchmark ten year gilt yields were at 0.672%, having fallen as low as 0.627% on Thursday in the immediate aftermath of the rate cut.

According to Kames Capital, the latest move by the MPC means gilt yields are well supported even at these record low levels. John McNeil, investment manager within the company’s fixed income team, said: “The gilt market will be supported not only by the increase in QE but also from the re-investment of the redemption proceeds of the September 2016 gilt.

“UK policy will be easier in every dimension in the aftermath of the EU referendum vote, with the downside risks to the economy being met by a powerful policy response that should ensure said risks are cushioned.”

While equities climbed and yields fell, gold succumbed to profit-taking at the end of the week, having jumped sharply on Thursday after the QE decision. The precious metal finished down around 1% on the week, ending Friday’s session at $1,336.

Meanwhile, oil markets made some headway as investors returned to the asset class in the wake of its drop in to bear market territory in July. Shortly after London closed on Friday, Brent crude was at $43.84, up more than 3% on the week.

The Brexitometer

In the wake of the crisis, and in order to provide a quick and easy snapshot of the real impact of Brexit on markets, we will be updating the Brexitometer weekly, detailing the impact of the EU referendum result on UK markets.

FTSE 100: UP 7.2%

6,338 points at close on 23 June.

6,793 points at close on 5 August.

FTSE 250: UP 0.7%

17,334 points at close on 23 June.

17,465 points at close on 5 August.

FTSE All Share: UP 6%

3,481 points at close on 23 June.

3,690.8 points at close on 5 August.