BUSINESS LIVE: Bank of England cuts interest rates; Rolls-Royce shares soar to record high; next profit to approach £1bn

Rio Tinto has rejected calls from an investor to abandon its UK listing and focus on Australia, giving a boost to the London Stock Exchange.

The mining giant is listed primarily in London and also trades shares on the Sydney exchange.

Rolls-Royce has restarted dividend payments and raised full-year guidance after chief executive ‘Turbo’ Tufan Erginbilgic’s drive for profitability showed progress in the first half.

The FTSE 100 aircraft engine maker posted underlying operating profit of more than £1.1bn for the first six months of the year, up 70.7 per cent from £673m a year earlier.

Erginbilgic has implemented a strict cost-cutting programme (expected to reduce spending by £200m a year by the end of 2025) and has paid down some of Rolls’ significant debt.

Laith Khalaf, director of investment research at AJ Bell:

As to where interest rates will go from here, there are mixed messages in the Bank’s latest statement.

‘The fact that four of the nine members wanted to keep rates unchanged shows that there is still a considerable amount of hawkishness in the interest rate committee.

“But according to the Bank’s figures, if it cuts interest rates in line with market expectations, inflation is forecast to be 1.5% in three years, opening up the possibility of more drastic rate cuts than the market currently expects.

‘It is important to note that current interest rates are not remotely unusual by historical standards, and the extreme shock felt by millions of homeowners when refinancing their mortgages is due to the unnatural monetary conditions that prevailed in the previous decade of ultra-loose monetary policy.

‘Even if there are further rate cuts, no one should be under any illusions that rates will return to near-zero levels. And, as is always the case when it comes to interest rates, it is best not to count your chickens until they are hatched.’

US Federal Reserve Chairman Jerome Powell last night opened the door to a reduction in US interest rates starting next month.

Powell said the U.S. economy was getting closer to justifying a rate cut, but cautioned it was not there yet.

The US central bank voted unanimously to keep its benchmark interest rate at a range of 5.25 percent to 5.5 percent, a level it has maintained since last July.

Neil Birrell, Investment Director at Premier Miton Investors:

‘The UK interest rate cut has finally arrived. The Bank of England has shifted its focus from inflation to economic growth, although it is inevitably cautious about further cuts and cannot lead the bond market to expect too much too soon.

“But it is an important step, as so far only the US has not joined the global rate-cutting party. We could see financial markets further reflect the change in cycle, at the aggregate level, but probably more so within asset classes.”

Shell’s profit fell by almost a fifth in the second quarter but beat estimates even as refining margins and oil and gas trading weakened.

The energy giant posted a 19 percent drop in profit from $7.7 billion to $6.3 billion between the first and second quarters, beating analysts’ estimates of $6 billion.

It is the third consecutive quarter that Shell has beaten city estimates.

Indriatti van Hien, fund manager at Henderson Small Companies Investment Trust:

‘The Bank of England’s decision to cut rates by 25 basis points to 5% today is good news for the UK economy and stock market.

‘While nominal in absolute terms, it is a significant milestone in the direction monetary policy should take and should add to the momentum already building in UK business and consumer confidence.’

Next has raised its full-year profit forecasts after the retailer’s first-half sales beat expectations, boosted by a surge in online demand overseas.

The FTSE 100-listed high street giant saw its full-price sales rise 4.4 per cent in the first half of the year, beating expectations of 2.5 per cent, after securing £42m more revenue than expected in the second quarter.

Next told investors it had planned for a 0.3 percent decline in full-price sales in the second quarter, due to “exceptionally favourable” trading conditions last summer.

Jill Mackay, Scottish Friendly Savings Specialist:

‘The peak of the base rate lasted just under a year, after having risen meteorically in 2022 and 2023 to contain inflation. The cut is good news for households under mortgage pressure, but it will be bad news for savers, who will start to see their interest income reduced.

‘Despite having skyrocketed, rates are now likely to plummet. With the economy growing better than expected, wages rising and employment relatively strong, the bank will be willing to take a very dovish approach to avoid reigniting inflation. Where its neutral rate will end up is an open question, but it will take time to get there.’

Barclays’ profit fell in the first half as a strong performance from its investment banking division failed to offset a decline in its core UK business.

The FTSE 100-listed bank’s pre-tax profit fell 9 percent in the first half to £4.2 billion, beating estimates of £3.8 billion but down from £4.6 billion a year ago.

Group revenues were flat at £6.3 billion in the second quarter, beating expectations of £6.16 billion and taking total revenue for the half to £13.3 billion, down 2 percent from the previous year.

The Bank of England has cut its base interest rate to 5 percent. The bank’s Monetary Policy Committee voted 5 to 4 to cut it by 25 basis points to 5 percent.