Sterling has climbed to its highest level against the US dollar in a year as investors bet that the Bank of England will take a tougher stand against inflation than even the US Federal Reserve.

The pound jumped around 0.7% to almost $1.27, taking it to its strongest level against the dollar since April 2022.

As expected the Fed decided on a ‘skip’ move, by leaving its benchmark funds rate window at 5-5.25%, and chair Jerome Powell said the US central bank needed to gather more information about the economy to determine what to do next.

Expectations are for two more 25 basis point hikes this year, causing markets to push short-term US yields higher and close out bets on any cuts in 2023.

The Dow Jones Industrial Average was down 0.68% , while the S&P 500 managed gains of 0.08%. The tech-heavy Nasdaq Composite was 0.39% higher.

Today the European Central Bank is set to announce a further rate rise of 25 basis points, followed by the Bank of Japan on Friday and the Bank of England next week.

Traders believe the Bank of England will lift rates to a peak of at least 5.75% from the current 4.5%. That would take it to its highest level since July 2007.

The FTSE 100 closed 7.96 points higher at 7,602.74.

Setback for London

London’s capital markets suffered a fresh setback after WE Soda abruptly abandoned a planned £6 billion flotation hailed as the City’s biggest initial public offering in two years.

The decision to list on the London Stock Exchange had been hailed as a much-needed boost after a sharp drop in the number of flotations.

WE Soda, the world’s largest producer of natural soda ash, blamed “extreme investor caution in London” for cancelling the float just seven days after it had been confirmed.

GDP grows

The UK economy is estimated to have grown slightly in the three months to April, figures from the Office for National Statistics showed.

Gross domestic product (GDP) grew 0.2% in April, after a fall of 0.3% in March. For the three months to April, GDP grew by 0.1%.

The figure was in line with analysts’ expectations and was driven by the services sector, which expanded 0.3%. Output in consumer-facing services, such as stores and restaurants, grew by 1% in April, following a fall of 0.8% in the previous month

A rebound from a fall in March was boosted by growth in the service sector.

Chancellor Jeremy Hunt, pictured, said: “We are growing the economy, with the IMF saying that from 2025 we will grow faster than Germany, France and Italy. 

“But high growth needs low inflation, so we must stick relentlessly to our plan to halve the rate this year to protect family budgets.”

Shell

Shell is raising shareholder returns while committing to fewer emissions through a “balanced energy transition”.

An enhanced focus on performance and stronger capital and cost discipline will underpin higher shareholder distributions of 30-40%, compared with 20-30% previously, through a combination of dividends and share buybacks.

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AssetCo

Martin Gilbert, chairman of wealth management business AssetCo, said the business is “behind where we want it to be” after a half-year of “unrelenting market pressure”.

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Entain

Gambling group Entain has raised £600m via a placing and open offer to help fund the acquisition of Poland’s leading sports-betting operator, STS, announced after the market close Tuesday.

The owner of Coral and Ladbrokes agreed the £750m acquisition, alongside its joint venture partner EMMA Capital.