FTSE 100 close: Gilt yields fall and sterling dips after Pill’s rate cut comments
Gilt yields fell and sterling gave up some of its recent gains as markets latched onto comments from Huw Pill, the Bank of England’s chief economist, suggesting that rate cuts might come in the middle of next year.
Speaking yesterday, Pill said the market expectation for rate cuts to begin in August 2024 doesn’t seem “totally unreasonable, at least to me”.
“It is at that point you might consider or reassess, if nothing new has happened, where we are going to have to be,” he said in an online question-and-answer session.
In response to Pill’s comments, yields on government bonds fell. The yield on the 10-year gilt dropped around 0.1 per cent to around 4.28 per cent while the yield on a two-year gilt fell nearly 0.12 per cent to 4.63 per cent.
Bond prices are highly sensitive to changing rate expectations and tend to increase when markets bet on rate cuts. Yields move inversely to prices.
Sterling dropped around 0.30 per cent to trade around $1.23, having nearly touched $1.24 yesterday. The pound is sensitive to movements in interest rates, with higher rate expectations tending to boost sterling.
Despite bets that rate cuts might come next summer, London’s FTSE 100 index ended the day slightly lower.
The capital’s premier bluechip index closed 0.10 per cent lower at 7,410.04, while the more domestically-focused FTSE 250 index rose around 0.1 per cent, to 17,761.71, as it continued to perform well.
Beazley climbed to the top of the FTSE 100, rising 7.3 per cent after a strong trading update from the insurer.
Primark owner Associated British Foods also saw a strong day after reporting that revenues were up to almost £20bn. Its shares rose by around 6.7 per cent, as investors were buoyed by its pre-Christmas rally.
“One of ABF’s key strengths is its diversified portfolio of businesses, which includes many well-known food brands such as Kingsmill, Ryvita and Patak’s,” Aarin Chiekrie, equity analyst at Hargreaves Lansdown said.
“This diversification helps to spread out risk, ensuring the company isn’t overly reliant on any one product or division.”
On the FTSE 250, shares in Persimmon rose 6.4 per cent despite saying it expects market conditions to remain “highly uncertain” into 2024 due to the impact of higher interest rates.
It said it would build more homes than previously expected while confirming its guidance for the year.
The update comes as new figures pointed to a surprise increase in house prices in October, breaking a run of six consecutive falls.
According to Halifax, the typical UK home now costs £281k, up around £3,000 on the previous month.
Meanwhile, grocery price inflation has fallen to single digits for the first time in 16 months, figures show.
It is the eighth consecutive decline in the rate of price rises since the figure peaked at 17.5 per cent in March, and the first time the figure has fallen below 10 per cent since July last year.