FTSE falters ahead of MPC minutes and spending cuts

The FTSE 100 is trading 0.13% lower at 5,696 as investors wait for the minutes of the Bank of England’s Monetary Policy Committee and details of the government spending cuts. 

The MPC minutes will disclose whether members are now split three-ways over what action is needed to help the economy and if more quantitative easing (when the Bank of England buys back government debt to inject cash into the economic system) is required.

Before the last meeting, committee member Adam Posen said the bank should 'continue to be aggressive about promoting recovery'. Andrew Sentance, meanwhile supports raising interest rates. Figures for public sector debt are also due.

The big news will be at 12.30pm when investors get to scrutinise the government’s comprehensive spending review. Investors will be looking to see if the burden of the cuts will be paid sooner (front-loaded) rather than later (back loaded)

Marc Ostwald, strategist at Monument Securities, said: ‘The weekend press was suggesting more back-loaded (pay later) cuts. As for where to look, it really boils down to what is outlined as a timetable for each of the departmental spending cuts. The key point here is that a lot may be spending freezes, or a slower pace of increases relative to what Darling had put in place, as such the detailed report will have to be examined very carefully to make a judgement on the extent of front-/back-loading.’ 

He said: ‘A genuine front-loading will almost certainly heighten speculation about more QE from the BoE as an offset to the drag on growth from the spending cuts, which would undermine the GBP, boost Gilts and underpin equities.’

Speculation about quantitative easing in the US is also growing. Yesterday five regional presidents of the US Federal Reserve expressed views on whether more quantitative easing was needed. Three supported plans for more quantitative easing while two were against. However two of the supporters were non-voting.

On the stock market the biggest gainer was Smith & Nephew, the medical device manufacturer, up over 2%, up 14.5p at £5.65. Results posted by medical products firms in the US, Stryker Corp, and Johnson & Johnson.

The biggest loser was BAE Systems. The defence firm's shares were down 3.27%, a fall of 12p to £3.52. Chris Purdy of Spreadex said: ‘Aerospace and defence shares are fighting an uphill battle, and investors are retreating from the sector after Lockheed Martin’s results last night revealed a leaner order book amid government cuts.  BAE Systems weighs heavily on the FTSE index as defence cuts loom, including a reduction of manpower by 12,000 across the army and navy and news that the RAF will retire its archetypal fighter, the Harrier.’

Gold was worth $1340 per ounce and oil was worth $81 per barrel

The pound was worth $1.57 against the dollar and €1.14 against the Euro