A burst of optimism about UK interest rates failed to brighten a rather lacklustre day on the London stock market. The Bank of England, in its quarterly inflation report, released mid-morning, lowered its forecasts for both economic growth and inflation. That added to hopes that UK interest rates might have peaked in the current cycle although Mr Mervyn King, the Bank's deputy governor, said that inflationary risks were still evenly balanced.
The Bank's monetary policy committee (MPC) has left rates unchanged since February. "In order to look for a rate cut, the MPC would need to see signs that growth will slow below trend, or RPIX [retail price index excluding mortgage interest] inflation will weaken further, or earnings will have to slow further," said Mr Michael Saunders, UK economist at Schroder Salomon Smith Barney.
The FTSE 100 index did advance on the back of the report, reaching a peak for the day of 6,480.0. But the rally petered out in the afternoon.
While the UK central bank may have helped the market, the US central bank did not. Wednesday's decision by the Federal Reserve to maintain its "tightening" bias on monetary policy disappointed those analysts who were hoping for a shift to a neutral approach.
The third development on the interest-rate front was that the European Central Bank left rates on hold yesterday.
After triple-digit moves on Monday and Tuesday, the FTSE 100 index ended virtually flat for the second successive session. The blue chip benchmark edged down 1.9 to 6,430.4, still well within its long-running trading range.
All the other leading indices were also modestly in the red. The Techmark 100 dropped 46.86 points to 3,147.55.
The market's lack of direction may also have owed something to a slim corporate news agenda. Telewest released some encouraging third-quarter results, making it the best performer in the FTSE 100. Spirent had a good reaction to its proposed US acquisition.
Among the smallcaps, there was a profit warning from electrical group T Clarke and musical instrument maker Boosey & Hawkes saw its shares savaged as it announced accounting errors in its US operations.
On balance, the TMT (technology, media and telecoms) stocks had the worst of the day. Bookham, Colt Telecom and Misys were among the five worst performers in the Footsie. Durlacher, one of the hot stocks of 1999 and early 2000, fell another 11 per cent. But the mood was not one-way: Freeserve, the Internet service provider, recovered strongly on a broker recommendation.
Turnover was 1.76 billion shares by the 6 p.m. count, down from Tuesday's and Wednesday's levels.
