FTSE closes on a high as Bank signals rate cuts on the horizon
The pound fell to its lowest level so far this month. Sterling fell 0.6 per cent to $1.262, its lowest value since 1 March, having dropped nearly 1 per cent the previous day.
Shares on London’s FTSE 100 stock exchange closed at their highest level in more than a year yesterday, boosted by comments from the Governor of the Bank of England that signalled a cut to interest rates. Andrew Bailey told the Financial Times that expectations of interest rate cuts this year were not “unreasonable” as he showed optimism about the economy.
“The fact that we have a curve that has cuts in it for the year as a whole is not unreasonable to me,” Mr Bailey said. He said he was encouraged by recent signs that UK inflation is on the wane.
His words fuelled market optimism that the economy was recovering rapidly.
The FTSE 100 rose 0.61 per cent to clinch its second straight week of gains. It closed at 7,930.92 points, up 48.37 – close to its all-time high of 8,004 in February last year.
“I think there might be some profit-taking at the end of the week, just because of the amount of data that we’ve seen and the fact that we have seen more positive surprises,” said Baylee Wakefield, a fund manager at Aviva.
On Thursday, the Bank kept its benchmark lending rate on hold at a 16-year high of 5.25 per cent.
But two members of its rate-setting committee dropped their calls for rate increases as inflation eases, while the Governor said “things are moving in the right direction”. Kathleen Brooks, research director at trading platform XTB, said: “The market rally this week was driven by news that central banks have shifted to a more dovish stance. “The dovish shift in the Bank vote split is seen as a major step towards cutting rates later this year. The market now thinks that the first rate cut will come in June and that there will be three rate cuts this year.” High street retail sales also boosted the feel-good factor. Widely expected to fall, the numbers remained steady even as wet weather and cost of living pressures kept people at home.
Retail sales volumes were flat and remained 1.3 per cent below pre-pandemic levels, the Office for National Statistics (ONS) said. Heavy rain in February hurt sales at food and household goods stores, according to the ONS. But the weather boosted online shopping, which jumped by the most since July 2023 in terms of value. Experts, who had forecast that spending would fall, said the data added to signs that the economy is recovering from last year’s mild recession.
“The prospect of interest rate cuts and the boost to real household incomes from lower inflation and the 2p cut to national insurance in April suggest the recovery in real consumer spending will continue throughout this year,” said Alex Kerr, assistant economist at Capital Economics.
The boost followed comments by Lord Simon Wolfson, chief executive of Next, who said the economic environment was the most favourable for retailers in seven years.
“It has been a long time since we started a year in a more positive frame of mind,” he said.
Fresh figures showed that UK consumers are the least pessimistic about their personal finances since December 2021.
Market research firm GfK said its measure that tracks personal finance prospects in the year ahead had risen to two points, suggesting personal budgets remain strong.