On Wednesday, the blue-chip FTSE 100 index managed to erase some of the steep losses of the trading sessions and closed the day higher.
As for the mid-cap index, it was able to wipe out its shocking 3% decline, all thanks to the Bank of England (BoE) that stepped in to promise bond purchases, thereby giving sentiment a boost.
The BoE’s move
The British central bank announced that in order to bring stability to the markets, it would purchase as many bonds as required from now till October 14th.
In addition, it also said that it would delay the start of its gilt sales, which saw prices of UK gilt soar.
This move came after the announcement of the new economic strategy of the UK saw the British pound plunge to record lows earlier in the week.
The plan was censured by the International Monetary Fund (IMF) on Wednesday and Moody’s, the rating agency, also warned that massive unfunded tax cuts would be ‘credit negative’ for the country.
Market analysts said that the BoE’s announcement showed that it was willing to do all it can for preventing a financial crisis and it was already taking effect.
The export-focused FTSE 100 climbed 0.3% for the day, after early losses in the session had seen it lose as much as 2.1% to a low of six months.
As for the domestically-focused FTSE 250 index, it ended the day flat after making a recovery from lows of two years.
The biggest boost to the FTSE 100 index came from miners due to a rise in copper prices and energy and healthcare stocks also rose.
The BoE’s announcement benefitted global markets, as there was also a 0.3% rise in euro zone shares, while a rally was recorded on Wall Street after the last few weeks had seen a dizzying sell-off.
This year, global stock markets have taken a big hit over concerns that the aggressive policy tightening of monetary policy by central banks for curbing hefty inflation can drive the economies into recession.
So far, the FTSE 100 has shed as much as 5% of its value this year. Market analysts said that the fact that the BoE had to step in and take action shows that Britain’s markets are in a ranger precarious position.
They added that it would not be a surprise if there was another problem popping up soon in the financial markets.
They said that no matter how you look at it, economic growth is facing downside risks and the target of 2.5% growth in real GDP set by the Chancellor is appearing more and more unachievable.
The FTSE 100 index was weighed down by banking stocks that tend to be risk sensitive and they recorded 2.5% declines for the day.
As far as individual stocks are concerned, there was a 5.0% rise in the Burberry Group, after it announced that the position of its chief creative officer had been given to Daniel Lee.