(Updates with closing share prices)
* FTSE 100 index falls 1.4 percent
* Market reacts negatively to BoE comments
* TUI Travel drops from Tuesday's record high
By Atul Prakash
LONDON, Aug 7 Britain's top share index closed
at a four-week low on Wednesday on concerns the Bank of England
(BoE) and the U.S. Federal Reserve may start tightening monetary
policy earlier than expected.
A day after two Fed officials suggested the U.S. central
bank may cut the pace of bond purchases as early as next month,
the BoE said it planned to keep interest rates at a record low
until unemployment fell to 7 percent from 7.8 percent now, which
it views as unlikely for another three years.
But investors reacted cautiously to the guidance after the
BoE also said rates could be tightened if levels posed a threat
to financial stability, if medium-term inflation expectations
rose dangerously or if it forecast inflation in 18-24 months at
2.5 percent or higher.
"The equity markets have reacted negatively due to questions
over the credibility of the forward guidance knock-outs," James
Butterfill, global equity strategist at Coutts, said. "Both the
inflation knock-outs remain ambiguous."
Unemployment is expected to fall slowly, with the central
bank expecting it to average 7.1 percent in the third quarter of
2016, the end of its forecast horizon.
"The nightmare scenario for us all is that policy has to be
tightened because one or other of the 'knock-outs' has been
triggered before unemployment has fallen meaningfully," said
Nick Beecroft, Chairman at Saxo Capital Markets.
The market was choppy throughout the day, with the FTSE 100
turning positive after the BoE report before falling
later to a three-week low as investors fixed on negative
elements in the statements.
The FTSE 100 closed 1.4 percent weaker at 6,511.21 points,
the lowest since July 11, led by a sharp drop in TUI Travel
, the world's top tour operator.
TUI fell 5.2 percent after spiking up by a fifth in the last
three months to hit a record high on Tuesday and with no
prospect of more bullish news on the short-term
Panmure analyst Simon French cited "an earnings upgrade
which hasn't materialised". TUI said it expects to lift profits
by at least 10 percent this year but that total bookings were
down 2 percent, hit by weakness in Germany and France.
Among sectoral decliners, miners were hit hard. The UK
mining index fell 1.5 percent to feature among the
top decliners on the back of poor earnings and concerns about
global demand for industrial metals such as copper.
Randgold Resources dropped 1.4 percent after the
African miner's quarterly profit fell 62 percent, while Rio
Tinto fell 1.5 percent on weaker metals prices and
concerns about demand for raw materials in top consumer China.
Glencore Xstrata slid 1.9 percent after the mining
group and JPMorgan Chase & Co were hit with a U.S.
lawsuit, along with the London Metal Exchange, alleging they
artificially inflated aluminium prices.
(Additional reporting by Sudip Kar-Gupta; Editing by Louise