FTSE 100 surges 1% in early trade to fresh 11-month high

Pound spikes as Bank of England keeps interest rates unchanged

Chinese stocks close lower as material stocks weigh

Chancellor Philip Hammond says the UK economy has "taken a shock" post-Brexit

Bank of England keeps interest rates on hold

Bank of England leaves interest rates unchanged

The Bank of England has surprised financial markets by keeping interest rates on hold in July, as officials were split over unleashing immediate stimulus to boost the economy following the Brexit vote.

In their first meeting since the referendum result, policymakers voted by 8-1 to keep interest rates on hold at a record low of 0.5pc.

Mark Carney, the Governor of the Bank of England, said last month that he believed some stimulus would be required over the summer to support growth while steering inflation back towards the Bank's 2pc target.

The minutes of the Bank's July meeting said "most members" felt interest rates would need to be cut or its quantitative easing programme restarted to stimulate the economy next month, when policymakers publish their quarterly healthcheck of the UK.

Markets react to Bank of England inaction

The Bank of England’s inaction triggered explosive scenes on financial markets. The pound surged by more than 2pc to $1.3480 against the dollar, its highest level since June 30, while it spiked to €1.2045 against the euro. London’s FTSE 100, which had rallied by more than 1pc to an 11-month high in anticipation of a rate cut, crashed into negative territory in the minutes that followed the central bank’s announcement. The blue chip index closed down 15.93 points at 6,654.47. British government yields rose, with 10-year gilt yields hitting an intraday high of 0.815pc, up four basis points.

However, as markets digested the possibility of stimulus in three weeks time, the pound eased back from a two-week high. It closed above $1.33, up by more than 1pc on the day, but remains on track for its biggest weekly rise against the dollar since October 2009. With summer stimulus still to come, Nawaz Ali, of Western Union Business Solutions, sees “sub-$1.30 as a more likely destination” for cable by the fourth quarter of the year.