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European stocks hit four-year highs, pound falls after Bank of England split on rate

By Amanda Cooper

Optimism rises over end to US-China trade war but Bank of England lowers long-term growth forecast

European blue-chip stocks closed at their highest in four years, swept higher by optimism over a possible US-China trade deal, while on the foreign exchange market, the pound underperformed other major currencies after after a surprise split among the Bank of England’s policy-setting committee suggested a UK interest rate cut could be on the cards.

Global equities have hit record highs this month, buoyed by optimism that the United States and China will break their deadlock over trade and tariffs. Oil, which is highly sensitive to shifts in the broader economy, rose by more than $1 on the day to around $62.75 a barrel.

With optimism among investors riding high, gold fell by 1.75 percent to $1,467 an ounce.

The Stoxx50 index of major European blue-chip stocks closed 0.5 per cent higher at 3,706 points, led by the likes of German industrial group Siemens and Dutch financial group ING Group. The FTSE 100 ended the day marginally up at 0.13 percent at 7,406.41.

Sterling took a tumble after the Bank of England left UK rates unchanged at 0.75 per cent, but, in a surprise turn of events, two of its nine members voted for a quarter-point rate cut.

The bank’s Monetary Policy Committee (MPC) also lowered its longer-term growth forecasts for the UK economy to a rate of 1.8 per cent by 2021, from a previous estimate of 2.3 per cent, prompting a 0.25-percent slide in the pound to its lowest in two weeks at about $1.2824.

With a snap general election just five weeks away and the UK’s impending exit from the EU, Bank governor Mark Carney cited the uncertainty hanging over the growth outlook.

Marc Ostwald, strategist and chief economist at ADM Investor Services International, said the key aspect of the MPC’s conclusion was that change in the growth forecast.

“Their message is quite clear they may need to reinforce the expected recovery in the economy and they are now assuming there will be an orderly exit from the EU to a Canada-style free-trade agreement, but they are worried that, even though the UK economy may get over its Brexit uncertainties, the headwinds from the global economy may require them to give it a bit of help,” Ostwald told Bloomberg TV.

The euro was last down 0.2 per cent against the dollar at $1.1045, as investors flocked to riskier assets such as the dollar and commodities.

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