Is the board of British Airways about to buy a one-way ticket to Madrid? That was the story doing the rounds in the Square Mile this morning amid claims that the proposed merger with Spanish carrier Iberia could be completed by the second quarter of next year.

Reports in the Spanish press today say that the national carrier's board will meet tomorrow to discuss whether to press ahead and reach an initial merger agreement with Iberia.

If BA boss Willie Walsh gives the go-ahead, then the whole deal could be rushed through and completed by the second quarter of next year with Iberia naming the chairman of the enlarged company and British Airways the managing director.

Shareholders of BA would control 55% of the new company, whose headquarters would then be based in Madrid. The Dow Jones newswire reported overnight that Iberia has already hired the US investment bank JPMorgan to help it close a planned merger with BA.

Back home, BA lurches from one crisis to another. It now faces legal action by one trade union over a dispute with 14,000 cabin crew. The airline wants to cut costs in order to stem continuing losses but the unions are opposing such moves. The group is also struggling to cope with rising fuel costs and is looking to hedge against future increases. The shares shed a further 6¼p to 185½p.

The rest of the market traded above its worst levels of the day after news of an unexpected rise in UK manufacturing output during September.

The decision by the Bank of England's Monetary Policy Committee to peg rates at 0.5% for the seventh month in a row came as no surprise. But the Bank has given the go-ahead to print another £25 billion for its quantitative easing programme. That increases the total to £200 billion. Some had expected £50 billion more to be made available to chuck at the economy. The FTSE 100 index was left nursing a loss of 18.59 at 5089.30, after earlier touching 5036.91.

Defensive stocks were singled out for support with BT Group adding 2¾p at 136¼p, British American Tobacco, 41p at 1958p and Tesco 9½p at 418½p. They gained ground at the expense of the state-owned banks and miners. Lloyds Banking Group came under fresh selling pressure ahead of details of its record-breaking £13 billion rights issue, losing 2.6p at 83.6p, and Royal Bank of Scotland fell a penny to 35.4p. A stronger dollar made the miners less attractive. BHP Billiton fell 30p to 1675p with Xstrata down 12½p at 943½p.

India-based Vedanta Resources dropped 64p to 2226p after posting a 44% fall in first-half earnings which it blamed on weaker metal prices. But the group was upbeat about its prospects.

Hanson Westhouse has repeated its buy rating and 8½p target price on Stratex International, unmoved on 4p, the AIM-listed gold miner with interests in Turkey and Ethiopia. Stratex has issued a positive update on its Inlice and Altintepe projects in Turkey and expects to sign a joint venture agreement with its partner NTF by the end of November. NTF will continue to invest $50,000 a month into the project until the deal is signed and will then pay Stratex an additional $1 million.

Property developer Grainger fell 19½p to 252½p after announcing plans to raise £250 million by way of a heavily discounted two-for-one rights issue at 90p. The issue has been fully underwritten by JPMorgan, Barclays, RBS Hoare Govett and Lloyds TSB. Grainger wants the money to strengthen its balance sheet. It has already taken steps to improve its finances by refinancing its debts, and increasing the level of investment sales of properties.

Nomura has raised its target on Marks & Spencer from 380p to 420p in the wake of yesterday's better-than-expected half-year profits. UBS has also jacked-up its target for the retailer from 355p to 380p and Deutsche Bank has raised its rating from hold to buy. The price added a further 3p to 364½p.

Oil explorer Soco International marked time at 1341p despite Bank of America Merrill Lynch repeating its buy rating and 1630p target. The broker says that the latest trading update from the company shows that the Soco story is steadily coming together. “Initial seismic reinterpretation results on the Vietnamese portfolio appear encouraging and the testing of the Viodo, offshore of Congo, appraisal has been successful”.