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.
Nearly 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 UK’s 100 biggest companies, rose 1.5% to hit a fresh intraday high of 8,521.78 points amid growing confidence that the Bank of England will ease monetary policy this year.
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A three-day rally has driven the FTSE 100 over its previous record high of 8,474 points, set in May 2024. It has gained about 4% since the start of the year, amid wider gains on global stock markets.
The rally was spurred by weaker-than-expected UK retail sales figures for December released on Friday, after economic data earlier this week showing inflation fell last month while the economy only grew modestly in November. This could encourage Bank policymakers to cut rates to 4.5%, from 4.75%, at their next meeting in early February, to support the economy.
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“The FTSE 100 pushed sharply higher as a fresh bout of weak economic data poured cold water on the notion that the Bank of England would have to take a patient approach in the face of burgeoning inflation pressures,” said Joshua Mahony, an analyst at Scope Markets.
“Notably, the gains seen in the wake of a 0.3% decline in retail sales volume continues to maintain the ‘bad news is good news’ mantra for markets,” Mahony added.
The pound dropped by more than half a cent during Friday’s session, to $1.218, after the Office for National Statistics reported that UK retail sales volumes fell by 0.3% in December. The data, which was seasonally adjusted to strip out the impact of Christmas and Black Friday late last November, was weaker than the City had expected.
The money markets now predict the Bank will make two or three quarter-point cuts to interest rates this year.
A week ago, two rate cuts in 2024 were not fully priced in. At that stage, the markets were reeling from a sell-off in UK government bonds that threatened to sink Rachel Reeves’s hopes of sticking to her fiscal rules.
However, bond prices have recovered this week, lowering the cost of government borrowing, as expectations of interest rate cuts have risen and the chancellor has insisted her fiscal rules are non-negotiable.
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The yield, or interest rate, on 10-year UK debt has fallen back to 4.62%, the lowest since 7 January, the first day of the bond sell-off last week that pushed 10-year borrowing costs to the highest since 2008.
Meanwhile, 30-year bond yields, which hit the highest level since 1998 last week, have also recovered.
Shares in the mining companies Glencore and Rio Tinto rose, by 2.2% and 1.3% respectively, after reports that the groups had held talks last year about combining part or all of their businesses.
Among smaller companies in London, shares in the financial services company Close Brothers jumped 10% after the Financial Services Authority said it would provide clarity on the UK’s motor finance scandal later this year.
The City watchdog also said it would aim to prevent “further significant FCA-led consumer redress exercises”.
Last month, the FCA indicated that the scandal – involving commissions paid to car dealers when customers took out finance arrangements to buy a vehicle – could be as big as the payment protection insurance (PPI) mis-selling scandal.