FTSE 100: London markets tick down as Bank of England cautious on future rate cuts

London’s FTSE 100 ticked down on Thursday as investors digested the Bank of England’s latest decision to hold interest rates, with the first three-way split among policymakers since 2008.

Markets’ reaction was mostly subdued as the Bank continued to stress that it needs to see more evidence that inflation is moving in the right direction before cutting rates.

The bluechip index closed 0.11 per cent lower at 7,622.16 while the midcap FTSE 250, which is more aligned with the health of the UK economy, fell 1.17 per cent to 19,131.16.

The central bank kept interest rates at a 15-year high of 5.25 per cent for the fourth time in a row after six members of its nine-strong Monetary Policy Committee (MPC) backed a hold, while two favoured a further 25 basis point hike.

Swati Dhingra, the MPC’s most dovish member, opted for a cut – the first time a policymaker has voted this way since the Covid-19 pandemic.

The Bank removed any references to hiking rates further and noted that inflation has “fallen back relatively sharply” over the past few months, but gave no timetable for cuts.

Its forecasts expected inflation to briefly touch two per cent in the spring but remain above target in two years time. 

“With plenty of the economic impact of previous interest rate rises still to be felt, it’s no surprise the Bank are sitting on their hands, and that might be the pattern we have to get used to for some time,” said Laith Khalaf, head of investment analysis at AJ Bell.

“The market is getting excited about rate cuts though, pricing four in this year.”

The decision came just a day after the US Federal Reserve left interest rates on hold. The Fed was slightly more hawkish than many had predicted, with rate-setters saying they needed “greater confidence” inflation was falling to target sustainably.

The news prompted US markets to fall sharply, with the S&P 500 closing 1.6 per cent lower and the Nasdaq index ending over 2.2 per cent lower.

Elsewhere, Euro area inflation fell to 2.8 per cent in January, down from 2.9 per cent in December, as markets speculate when the European Central Bank will begin to cut interest rates

In company news, Shell rallied 2.4 per cent after the oil giant’s profit beat analyst consensus, even though it fell 29 per cent as a result of asset write-downs and a slump in oil prices.

Adjusted earnings came in at $28.3bn for the full-year 2023 period, against $39.9bn in 2022, while for the fourth quarter the firm collected $7.3bn against $9.8bn a year prior.

Swiss mining group Glencore has said that production across its key energy transition stable of metals was lower for 2023 and warned that 2024 could bring the same. Shares rose 0.5 per cent in London.

BT shares fell 2.6 per cent after Britain’s largest telecoms firm said it had added 432,000 Openreach customers in its most recent quarter but added that broadband losses could surpass £400k this year.