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UK shares slip in early trade Pound jumps on surprise Bank vote
(about 5 hours later)
The UK stock market opened lower, with shares in furniture retailer DFS sinking by a fifth after it issued a profit warning. Sterling surged by almost a cent against the dollar after three Bank of England rate-setters voted for a rise in UK interest rates.
DFS shares plunged 20% after it said trading in the second half of its financial year had weakened "beyond our expectation". The Bank kept its key interest rate at 0.25%, as expected, but the 5-3 split among policymakers was the closest vote for a rate rise since 2007.
The company blamed consumer caution regarding the general election and "uncertain macroeconomic environment". The pound jumped as the vote raised the possibility of rates rising earlier than had been expected.
Shares in rival sofa retailer ScS fell more than 10%. Sterling had been below $1.27, but it surged to $1.2795 after the decision.
The benchmark FTSE 100 share index, which does not include either DFS or ScS, was down 30.65 points at 7,443.75 in early trade. However, it then lost some ground to stand at $1.2766. The pound followed a similar pattern against the euro, and was up 0.6% at 1.1439 euros.
On the currency markets, the pound fell 0.2% against the dollar to $1.2730, while it edged up 0.1% against the euro to 1.1381 euros. Minutes from the Bank of England's latest meeting showed that Monetary Policy Committee members Ian McCafferty and Michael Saunders had joined Kristin Forbes in voting for a rate rise.
However, some analysts judged that the possibility of an early rate rise was still distant, despite the closeness of this month's vote.
"We continue to think that a majority of MPC members will vote to keep interest rates on hold this year," said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
"This was Kristin Forbes' last meeting, so the number of hawks likely will decline at the next meeting in August."
On the stock market, news of the Bank's decision pushed the FTSE 100 share index down further.
The index had already been trading lower and the surprise news from the Bank left it down 88.6 points, or 1.2% lower, at 7,385.7.
The FTSE 100 often moves inversely to the pound as many of the firms in the index have significant earnings overseas, and a stronger pound means these profits are worth less when converted back into sterling.