LONDON (Alliance News) - UK stock indices are trading near flat Wednesday ahead of the Chancellor George Osborne's 2014 budget announcement at midday, while the pound has risen to a session high on the release of better-than-expected UK unemployment numbers.
By mid-morning Wednesday, the FTSE 100 is down 0.1% at 6,592.12, while the FTSE 250 near flat at 16,350.30, and the AIM All-Share is down 0.1% at 866.70.
Stocks continue to remain resilient to reports from Ukraine, the latest being that pro-Russian activists have stormed the Ukrainian navy headquarters in Crimea - a day after Russia signed an accession treaty with the leaders of the Black Sea peninsula. While more sanctions and volatility may be around the corner, investors have been focused on UK economic data so far Wednesday.
Unemployment in the UK fell by faster than expected in January, dropping by 34,600, accelerating from the 33,900 drop recorded in December and exceeding economist expectations of a 25,000 drop. The headline three-month rolling average rate of unemployment remained stable at 7.2% as expected.
The single month unemployment rate in January came in at 6.9%, just below the Bank of England's discarded 7.0% threshold to begin discussing interest rate rises and the lowest level since February 2009.
Although the use of unemployment as the single measure for considering interest rate changes has been dropped by the BoE, in favour of a broader measure of spare capacity, markets still equate falling unemployment as a step towards a rise in the UK base rate from the current 0.50% and the faster-than-expected fall pushed the pound to a session high against the dollar of USD1.6642.
The Monetary Policy Committee minutes of the March 5-6 meeting revealed that the policy members discussed the strength of the pound as having effectively tightened monetary policy slightly since the last meeting. The 1.5% rise in the effective exchange rate was partially credited to safe-haven flow due to the conflict in Ukraine.
The nine committee members vote unanimously to keep interest rates unchanged at 0.50% and to maintain the central bank's GBP375 billion stock of asset purchases.
The minutes also mentioned that there was a difference in opinion among the members with regard to the amount of spare capacity in the economy. No further details were given, but MPC-member Martin Weale had previously told the Treasury Select Committee that he believes there is less spare capacity than do other members of the MPC. This difference in opinion may become an increasing market driver as the year goes on until at some stage MPC members begin to vote for a rate rise.
Further good news for the UK economy and the pound ahead of Osborne's budget was a slightly faster-than-expected rise in average earnings. Average earnings excluding bonuses increased by 1.3% in January, up from 1.0% growth in December, and exceeding the expectation of 1.2%. Including bonuses, earnings increased by 1.4%, faster than the 1.3% expected.
Outside of the raft of UK releases, eurozone construction output increased by 1.5% in January, accelerating from 0.95 growth in December. The data has lifted the euro very slightly off its intra-day low against the dollar to currently trade at USD1.3915.
While the UK stock indices are relatively quiet as a whole, as investors await for the budget announcements, there are a few stand-out stock movers, including Ophir Energy, which leads the FTSE 250 lower. The stock is down nearly 20% after the company said it has failed to find significant hydrocarbons in targeted reservoirs through drilling at the Padouck Deep-1 well in the Ntsina Block, offshore Gabon.
At the other end of the FTSE 250, Imagination Technologies is leading the gains, up almost 10% after the firm said it has developed a new suite of graphics processors for mobile phones and other consumer devices.
In the FTSE 100, Smiths Group leads the fallers, down 6.0% after saying its profit declined to GBP132 million from GBP166 million, as revenue slipped to GBP1.44 billion from GBP1.48 billion in the previous year, largely due to the Medical and Defence businesses.
Leading the FTSE 100 gainers, BAE Systems is up 2.5% after receiving an upgrade to Outperform from RBC Capital Markets.
Still to come Wednesday, all eyes will be on George Osborne at 1230 GMT for the budget. After the markets have digested that, focus will switch to the US for Janet Yellen's first Q&A following the latest policy decision by the US central bank. The FOMC is widely expected to reduce its monthly asset purchases by a further USD10 billion to USD55 billion.
By Jon Darby; jondarby@alliancenews.com; @jondarby100
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