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London pre-open: Stocks to fall as BoE stands pat

Thu 06 August 2020 07:39 | A A A

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6007.05 | Negative 42.87 (0.71%)
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(Sharecast News) - London stocks were set for a slightly weaker open on Thursday as the Bank of England stood pat on interest rates and warned that unemployment will remain high.

The FTSE 100 was called to open 38 points lower at 6,066.

The BoE held rates at 0.1% and left asset purchases unchanged, as expected. It said the economy should contract by 9.5% this year before growing 9% next year but warned that unemployment will remain high, with the unemployment rate set to rise to around 7.5% by the end of the year.

CMC Markets analyst Michael Hewson said: "The central bank also continued to flog the dead horse of negative rates, saying that they continued to monitor the sustainability of negative rates.

"We already know from the experience of Japan and Europe the damage negative rates does to the banking system overall, and the UK with its huge financial sector is unlikely to be any different. If anything negative rates could weaken the UK financial sector even further, thus destabilising the economy even more.

"In any event there was nothing particularly dovish about any of these comments with the pound only slightly firmer, just below the March peaks at $1.3200."

In corporate news, insurer Aviva reinstated its dividend but said it would review its payout policy as half-year profit fell on coronavirus-related and weather claims.

The company declared a 6p-a-share dividend. Operating profit fell to £1.25bn from £1.38bn. Aviva took a £165m hit from Covid-19 on general insurance claims.

"While the board continues to monitor the impact of Covid-19 and the economic outlook carefully and with appropriate prudence, we have decided to take the opportunity to review our longer term dividend policy, in light of our strategic priorities and the future shape of the group, with the objective of a sustainable pay-out and lower leverage."

ITV's first-half profit fell 93% as the Covid-19 crisis caused revenue to fall and exceptional costs to increase.

Pre-tax profit for the six months to the end of June dropped to £15m from £222m as revenue fell to £1.22bn from £1.48bn. Adjusted earnings before interest, tax and amortisation fell 50% to £165m.

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