FTSE 100 hits record high as traders anticipate interest rate cuts
Boom! Britain’s blue-chip share index has hit a new alltime high.
The FTSE 100 index, which tracks the hundred largest companies listed in London, has jumped by over 1% to 8480.36 points in early trading, above its previous intraday high of 8474 points set last May.
Stocks are on a three-day rally, which started on Wednesday when UK inflation dropped unexpectedly, potentially paving the way for several interest rate cuts this year.
Today’s disappointing retail sales figures, folowing Thursday’s weaker-than-expected growth data for December, have added to hopes that the Bank of England will ease monetary policy this year.
This morning, the financial markets are pricing in between two and three interest rate cuts this year – last week, duing the bond market mayhem, fewer than two were expected.
That has pushed down the pound, which raises the value of multinational companies listed in London (it makes their earnings in other currencies more valuable).
Global stocks have also benefited from reports that Donald Trump could take a more cautious approach to implementing tariffs than feared.
Mining companies are rallying in London this morning, following reports that Rio Tinto and Glencore have discussed combining their businesses (see earlier post)
Key events
Closing post
Time to wrap up….
The UK’s blue-chip stock index hit a record high on Friday, as rising hopes of interest rate cuts this year drove down government borrowing costs.
Almost every share on the FTSE 100 rose on Friday, as a fall in the value of the pound boosted multinational companies listed in London and propelled the index above 8,500 points for the first time.
The “Footsie”, which tracks the 100 biggest London-listed companies, rose 1.6% to hit a fresh intraday high of 8,533.43 points amid growing confidence that the Bank of England will ease monetary policy this year, before closing at 8505 points…
UK government bond prices have also eased back from their recent highs, helped by expectations of interest rate cuts this year.
The International Monetary Fund has upgraded its forecast for UK growth this year in an update to its biannual assessment of the global economy, while taking a swipe at plans by Donald Trump’s incoming US administration for the potentially destabilising effect of large-scale tax cuts, import tariffs and weaker regulations.
In a fillip to the Labour government, the Washington-based organisation said it expected the UK economy to grow by 1.6% in 2025, up from an earlier forecast of 1.5%.
The IMF judged that Labour’s increase in investment spending, improved household finances and a series of interest rate cuts by the Bank of England would give the UK economy a lift, after growing by 0.9% in 2024 according to the fund’s expectations.
The Bank of England will further delay capital rules meant to prevent another 2008-style crash, as it weighs the impact of Donald Trump’s return to the White House and the chancellor Rachel Reeves’s call for regulators to help drive UK growth.
The US supreme court has issued a ruling upholding a nationwide ban on TikTok unless it sells to an owner in the US.
The nine justices voted unanimously in a decision on Friday that sides with the majority of US Congress and the US Department of Justice that the hugely popular social media app is a threat to US national security.
The FTSE 100 has topped off its surge by ending the day at a new closing high of 8,505 points.
Jo Rands, portfolio manager at Martin Currie, says:
“The FTSE100 has hit an all-time high, despite the negative rhetoric around rising gilt yields and the outlook for the UK economy. The large cap index is traditionally a low beta defensive market, which is predominantly composed of very international businesses. The FTSE 100 generates c.80% of its revenues from outside the UK, which also means the weaker pound has been a positive influence for the index.
“The year has started with the index being powered by index heavy weights such as BP and Shell, which have advanced following rising oil prices, and with the Banks benefitting from a pushback on interest rate cuts.
IMF: UK budget is good for growth, despite tax rises
The IMF has credited Rachel Reeves’s first budget with having a positive impact on growth, despite the increased taxes on businesses.
Discussing today’s upgraded UK growth forecast, from 1.5% to 1.6% for this year, the Fund’s chief economist, Pierre-Olivier Gourinchas, said it reflected measures in the budget as well as the impact of real wage growth, and likely interest rate cuts this year.
Gourinchas says:
Some of that revision is reflecting the fact that we have a continued pick-up in real incomes and in consumption in the UK.
But it also reflects some of the effect of the fiscal measures that have been announced by the authorities in their October budget that are expected to lead to higher public investment, in particular. That will support economic activity.
The forecasts also assume “continued easing of monetary policy”, with the IMF expecting the Bank of England will cut interest rates once per quarter this year.
Gourinchas does point out that some of the increases in public spending in budget are funded by increases in taxes, such as higher national insurance contributions for businsses.
That could weigh down, but the net effect in our assessment is still positive for growth for the UK economy in 2025.
US Supreme Court upholds divest-or-ban law targeting TikTok
Over in the US, the supreme court has upheld a divest-or-ban law targeting TikTok.
The deicsion means that a law forcing TikTok’s Chinese owner to sell its US business by Sunday, or face a ban, will go into effect.
Our Politics Live blog has the details:
Stocks are also rallying on Wall Street, helped by falling bond yields and better-than-forecast growth data from China overnight.
The Dow Jones industrial average is up 0.8%, or 350 points, at 43,504 points, with the broader S&P 500 index up 0.9%.
UK expected to have third-strongest G7 growth in 2025
Newsflash: The UK is expected to post the fastest growth among major European economies this year, although still lag behind the United States and Canada.
The International Monetary Fund has raised its forecast for UK growth this year to 1.6%, up from 1.5% predicted in October.
That would mean Britain would outpace Germany, whose predicted growth in 2025 has been cut to just 0.3% from 0.8%, as well as France (expected to grow by 0.8% this year) and Italy (0.7%).
The Fund has raised its forecast for US growth this year to 2.7%, up from 2.2%, while Canada’s forecast has been cut from 2.4% to 2%. Japan is still forecast to grow by 1.1%.
However, these forecasts don’t seem to include the possibility that Donald Trump triggers a damaging trade war.
Pierre–Olivier Gourinchas, the IMF’s Economic Counsellor, says:
Our projections incorporate recent market developments and the impact of heightened trade policy uncertainty, assumed to be temporary, but refrain from making assumptions about potential policy changes that are currently under public debate.
Gourinchas warns that policies such as higher tariffs or immigration curbs would reducing US economic output and add to price pressures.
Gourinchas also predicts that central banks will be able to lower interest rates this year, saying:
Inflation is declining, to 4.2 percent this year and 3.5 percent next year, in a return to central bank targets that will allow further normalization of monetary policy.
Relief for Reeves as UK bond yield surge evaporates
There’s encouraging news for Rachel Reeves in the bond markets today.
UK borrowing costs have fallen, and are now almost back at their levels early last week before bond yields surged.
The yield, or interest rate, on 10-year UK government bonds has dipped by four basis points, or 0.04 percentage points, to 4.627%. That’s the lowest level since last Tuesday, 7 January, the first day of the sell-off in UK debt that drove 10-year borrowing costs to their highest since 2008.
The yield on 30-year UK bonds has also dropped by 4bps, down to 5.187%. Last week it hit 5.474%, the highest since 1998, but has fallen for the last three days.
The recovery comes after the UK government insisted it would stick to its fiscal rules, an indication that spending cuts or tax rises might be implemented rather than increased borrowing.
It also reflects expectations that the Bank of England may cut interest rates several times this year, after the latest inflation, growth and retail sales figures were lower than expected this week.
But it is also part of a wider recovery in bond prices in recent days. US Treasury yields have also dropped this week, following reports that Donald Trump’s administration may take a more gradual approach to tariffs.
FTSE 100 over 8,500 points
The FTSE 100 is continuing to rally, and just poked its nose over the 8,500-point mark for the first time ever.
The blue-chip share index has now hit a new alltime high of 8506.80 points.
As we covered late last year, analysts had predicting stock markets would rally this year – with AJ Bell suggesting the FTSE 100 could reach 9,000 points.
The recent jump in Britain’s bond market borrowing costs are a “concern”, according to credit ratings agency S&P Global today.
However, S&P said it wasn’t severe enough yet to have an immediate impact on the UK’s AA credit rating.
In a research note, S&P argue that the situation is “manageable”, although higher borrowing costs may lead to a fall in investment.
S&P Global Ratings credit analyst Frank Gill says:
“The selloff, which started at the end of 2024, has been fairly broad-based across the safe asset space. Yet G7 governments with larger net borrowing requirements–including France, the U.S., and the U.K.–have underperformed, pointing to a rise in risk premia.”
S&P point out that UK policymakers have options – the Bank of England could slow the pace of its sales of UK debt (under its QT programme, which is unwinding stimulus).
City traders are increasingly confident that the Bank of England will cut UK interest rates next month.
The money markets now indicate there’s an 81.5% chance that Bank rate is lowered to 4.5%, from 4.75%, at the BoE’s next meeting on 6 February.
Those interest rate expectations have pushed the pound down to $1.22 this morning.
Raffi Boyadjian, lead market analystat XM, says:
The pound stands out as being the weak link among the majors, as it looks set to post a third straight weekly decline. It’s been a busy week for UK data releases consisting of CPI, GDP and retail sales figures. But all three reports came in below expectations, boosting the odds that the Bank of England will lower rates at its February 6 meeting.
Nevertheless, the pound’s freefall has been good news for UK stocks, with the FTSE 100 hitting intra-day record highs today.
The FTSE 100 has been derided as a ‘Jurassic Park’ index over the years, for its lack of exciting technology companies.
But that boring nature is actually attractive to investors because it provides some protection for investors in a time of geopolitical uncertainty, says Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Streeter says:
FTSE 100 stars like Rolls Royce and NatWest, which saw their share prices double over the [last] year, are among the climbers today. The FTSE 100 has been a laggard compared to US indices. They surged higher in 2024, with the S&P 500 gaining more than 23%, helped by big gains among the mighty tech stocks, fuelled by AI optimism.
But appetite for UK market is being revived, as investors are attracted by its defensive characteristics in an era of global uncertainty. Sectors like healthcare, utilities, consumer staples and telecoms companies can offer stable returns. The impressive dividend-paying potential is a key attraction to the UK stock market. There are plenty of mature companies boasting strong dividend cover and the potential for income to grow over the long term.
£60m funding boost for UK creative industries amid Soft Power push
Mark Sweney
The government has announced a £60m funding package for the creative industries, including investment in British film and TV, grass roots music and start-up video game companies.
The government said that the investment, £40m of which will be spent over the next financial year, will benefit hundreds of creative businesses “marking the first step of the government’s sector plan for the creative industries.
Chancellor Rachel Reeves says:
“Our number one mission is to grow the economy and our creative industries are a British success story with a big part to play.”
The announcement was made as Lisa Nandy, the culture secretary, held a creative industries summit in Gatehead attended by more than 250 businesses and cultural leaders including Netflix, Spotify, Warner Bros, the National Theatre and British Museum.
Nandy says:
“From film and fashion to music and advertising, our creative industries are truly world-class and play a critical role in helping us deliver on this Government’s mission to drive economic growth in all parts of the UK.
The British Business Bank, which supports £17.4bn of finance to over 64,000 smaller businesses, has committed to increase its support for creative businesses to access the finance they need to grow.
The government also formally announced the creation of a Soft Power Council, which will advise the government on driving growth and investment at home and abroad, comprised of leading executives including former ITV chairman Sir Peter Bazalgette, Roland Rudd, the co-chair of PR giant FGS Global and Victoria and Albert Museum director Tristram Hunt.
Sir David Lammy, the foreign secretary, said that its aim is to “re-imagine Britain’s role on the world stage”, adding:
“Soft power is fundamental to the UK’s impact and reputation around the world.
I am often struck by the enormous love and respect which our music, sport and educational institutions generate on every continent. But we have not taken a sufficiently strategic approach to these huge assets as a country.”
The FTSE 100 has hit a new record high despite the much-discussed impact of higher taxes on UK businesses contained in last year’s budget, and the recent turmoil in the bond market.
Dan Coatsworth, investment analyst at AJ Bell, says:
“It’s refreshing to see positive news around the UK stock market given its unloved reputation.
“Helping to drive the index up more than 1% and above its previous intraday record of 8,474 in May 2024 was a further slump in the pound as retail sales came in below expectations for December.
“Three quarters of companies in the FTSE 100 generate their earnings overseas, and the relative value of those foreign earnings is boosted when the pound weakens. The natural resources sector was also lifted by merger and takeover chatter, encouraging investors to bid up shares in the likes of Glencore and Anglo American.
“Weak UK retail sales in December are a worry as they indicate further pressure on the economy following weak GDP data yesterday. Traders are pricing in an 81.5% probability that the Bank of England will cut interest rates by a quarter percentage point next month. Retailers will be keeping their fingers crossed this happens as it could help to take some of the pressure off household finances and encourage more spending.”
