Bank of England see sterling and Ftse index increase

The pound rose sharply yesterday after new forecasts from the Bank of England appeared to bring forward the likely timing of an interest rate hike.

Traders looked beyond the BoE’s near-term prediction of negative Consumer Price Index inflation this spring and instead focused on the outlook further down the track, which has been nudged higher.

Sterling’s rise came in a session when the Ftse 100 index inched ahead, finishing 9.9 points up at 6828.1.

The currency was propelled higher after the BoE’s forecasts appeared to suggest that markets had gone too far in predicting interest rates would not rise until the middle of next year.

Some economists now think there is a reasonable chance of an increase before the end of 2015.

The pound climbed by a cent, or almost 1%, against the US dollar at just under 1.54 while it also reached a new seven-year high against the euro as it surged to nearly 1.36, before settling back just below 1.35.

A boost for London investors came from Rio Tinto after the Anglo-Australian commodities giant unveiled a move to boost shareholder returns.

The company’s annual results showed a 9% drop in earnings to $9.3bn (£6.1bn) but this was offset by a 12% increase in its full-year dividend and intention to buy back $2bn of shares.

In the wake of Rio’s recent rejection of a takeover approach from Glencore, chief executive Sam Walsh said the move kept the company’s promise to materially increase cash returns to shareholders.

Rio Tinto shares were 68p higher at 3039.5p, with other mining stocks on the front foot including Anglo American and Antofagasta.

The biggest risers on the Ftse 100 were Coca-Cola HBC, up 68p to 1159p, Intertek up 120p to 2568p, Shire up 221p to 4997p, and Anglo American up 42p to 1165.5p.

The biggest fallers were BT down 10p to 450p, GlaxoSmithKline down 28.5p to 1485.5p, Royal Dutch Shell down 41p to 2203.5p, and Compass down 18p to 1118p.