FTSE 100 hits record closing high amid hopes over interest rates

The stock market hit a record closing high yesterday amid optimism that the Bank of England will cut interest rates twice this year and the easing geopolitical tensions in the Middle East.

The FTSE 100 ended trading above its previous closing peak, set in February 2023, helped by rate-cut hopes and a weakening pound.

The index closed at 8,023 points, having jumped by 128 points, or 1.6%, yesterday. Its previous closing high was 8,014 points.

This left the index shy of its all-time intraday high, also set in February 2023, when it reached 8,047.06 points.

Investor spirits in London were lifted by expectations that the Bank of England will lower interest rates by half a percentage point down to 4.75% by December from the current 16-year high of 5.25%.

The City money markets brought forward the likely timing of the first rate cut to August from September, after the Bank’s deputy governor Sir Dave Ramsden predicted on Friday that inflation could be lower than expected over the next three years, and remain close to the Bank’s 2% target. The headline rate of inflation is now 3.2%.

The pound weakened to $1.23 against the US dollar, the lowest since November. A weaker pound has supported share prices in London, as the lower currency makes the overseas earnings of multinational companies more valuable in sterling terms.

Easing tensions in the Middle East also lifted investors’ confidence, after a weekend without further attacks between Iran and Israel after the Israeli missile attack on the Iranian cities of Isfahan and Tabriz on Friday.

The FTSE 100 index has gained almost 4% so far this year amid optimism that Britain’s economy has returned to growth in 2024 after dropping into a shallow recession at the end of 2023. That leaves it lagging behind other European indices, with France’s Cac and Germany’s Dax up 6.5% so far this year.