FTSE 100 close: Dovish Bank of England interest rate bets extend London gains
London’s FTSE 100 extended gains today as traders continued to cheer signs that UK inflation may have finally turned a corner.
The capital’s premier index hopped 0.76 per cent to 7,646.05 points, while the domestically-focused mid-cap FTSE 250 index, which is more aligned with the health of the UK economy, was broadly unchanged at 19,311.73 points.
London’s top index climbed nearly two per cent yesterday.
Stocks that received a boost from a quicker than forecast drop in UK inflation continued to rise in the City this morning.
Housebuilders led gains on the FTSE 100 in early exchanges, with Barratt Developments up 1.26 per cent.
That decline has raised hopes of the Bank of England slowing the pace of its interest rate rises at its next meeting on 3 August to 25 basis points and that the central bank could bring rates to a lower peak of 5.75 per cent.
Housebuilders are highly sensitive to changes in interest rate expectations due to their impact on the property market.
In recent weeks, mortgage rates have reached levels not seen since the 2008 financial crisis as a result of traders betting the Bank would have to crank up borrowing costs sharply to 6.25 per cent to tame sticky inflation.
Mortgage rates are likely to fall in the coming weeks as banks pass on a reduction in financial market UK rate expectations.
Miners were also up today. Anglo American, Rio Tinto and Antofagasta are traded near the top of the FTSE 100, boosted by rising commodity prices.
Pound sterling weakened 0.66 per cent against the US dollar, carrying on yesterday’s poor performance against the greenback due to more dovish interest rate bets.
Oil prices were broadly flat.