UK stocks inch higher as dovish BoE calms taper nerves

The Bank of England kept its main interest rate unchanged at 0.1% and stuck to its 895 billion pound ($1.22 trillion) asset purchase target to maintain support at a time of weak economic growth. The blue-chip FTSE 100 inched 0.1% higher and was set for a third consecutive session of gains.

UK stocks rose on Thursday, led by gains in mining and banking shares, as the Bank of England maintained its accommodative monetary policy and calmed fears of a sooner-than-expected tapering. The Bank of England kept its main interest rate unchanged at 0.1% and stuck to its 895 billion pounds ($1.22 trillion) asset purchase target to maintain support at a time of weak economic growth.

The blue-chip FTSE 100 inched 0.1% higher and was set for a third consecutive session of gains. Aero-engine and automobile maker Rolls-Royce jumped 2.5% to a six-month high and was the top FTSE 100 gainer after Berenberg raised its target price. The domestically focussed mid-cap index climbed 0.2%.

Retail, banking, and industrial miners were the top gainers, up between 0.3% and 0.5%. A jump in benchmark bond yields following the BoE decision helped support heavyweight banks. "The BoE is already ahead of other central banks in reducing the pace of its asset purchases, so the market is prepared for any taper commentary going ahead, but the bigger question is on the timeline of rate hikes and how the central bank plans to tackle inflation headwinds," said James Smith, an economist at ING.

The Federal Reserve said on Wednesday it would likely begin reducing its monthly bond purchases as soon as November and signaled interest rate increases might follow more quickly than expected. The FTSE 100 has gained 10% so far this year and is on track to record a weekly gain for the first time in three weeks on re-opening optimism and easy monetary policies. However, rising inflation pressures due to surging energy costs continue to weigh on sentiment.

London-listed shares of South Africa-based financial services group Investec gained 2.4% after it said it expected an up to 114% rise in half-year profits. Britain's Mitchells & Butlers Plc rose 1.7% after it said sales over the past two months had been above pre-pandemic levels.