European stocks close higher after BOE leaves key rate steady

Stocks across Europe surged Thursday, remaining on higher ground after the Bank of England (BOE) surprised markets by holding its key interest rate unchanged, in the central bank’s first monetary-policy decision after the U.K.’s historic Brexit vote.

The Stoxx Europe 600 gained 0.8% to close at 338.50, for a fifth gain in six sessions. The basic materials financials and the oil and gas groups were the best performing, FactSet data showed.

In a widely unexpected move, the Bank of England left unchanged its key interest rate at a record low of 0.5%. Markets had priced in the chances of the first rate cut since March 2009 as policy makers are seeing a “challenging” outlook for the British economy after the U.K.’s June 23 vote to exit the European Union.

London-listed blue-chips briefly turned lower after the decision as a rising pound hurt shares of exporters. The U.K’s FTSE 100 ended down 0.2% at 6,654.47 after swinging between small gains and losses into the close. Shares of banks, however, stayed higher, with Barclays PLC rising 2%.

“It’s clear that the [committee] thinks there just hasn’t been enough economic data since the Brexit to warrant further easing just yet. The bank has kept its powder dry and has more ammunition to ease at a later date if required,” wrote Neil Wilson, markets analyst at ETX Capital, in a note.

The British pound briefly rose above $1.34 before paring gains to $1.3360. Sterling was facing its largest one-day gain since the Brexit vote.

For sterling, “the big pressure is still the ongoing Brexit developments. The political situation has stabilized in the U.K. but that does remain a downside risk to pound strength over the coming months as we negotiate trade deals, especially with the EU,” said Alexandra Russell-Oliver, currency analyst at CaxtonFX.

The $1.33 to $1.34 level is an “upper-bound resistance for now”, she said.

In minutes released along with the decision, the central bank said most policy makers expect loosening of monetary policy in August.

The euro was buying $1.1111 compared with $1.1110 late Wednesday. The pound rose against the shared currency, to €1.2017.

Indexes: Germany’s DAX 30 climbed 1.4% to 10,068.30, for its first close above 10,000 since June 23. France’s CAC 40 rose 1.2% to 4,385.52.

Italy’s FTSE MIB rose 1.6% to 16,797.52 and Spain’s IBEX 30 tacked on 0.9% at 8,552.30.

Movers: UniCredit SpA shares tacked on 6.6% after Italy’s largest lender said it is considering a capital increase to meet European Central Bank requirements, as recent asset sales may not be enough to satisfy the central bank.

Meanwhile, another Italian lender, Banca Monte dei Paschi di Siena S.p.A ended up 4.3% Thursday and is up 22% on the week amid reports over the past week that it is working to clean up its balance sheet by selling billions in souring loans.

Hays PLC shares drove 5.5% higher as the employment recruiter expects full-year profit to outstrip analyst expectations.

Erste Group Bank AG shares jumped 14% in the wake of second-quarter results at the Vienna-based bank.

Source: MarketWatch