FTSE 100 surges after Bank of England cuts interest rate
The FTSE 100 and FTSE 250 surged higher today after the Bank of England moved to cut interest rates to 4.5 per cent in a bid to breathe life into Britain’s ailing economy.
All of the Bank’s nine-strong monetary policy committee voted in favour of a reduction in rates, with two members of the group voting for a faster half-percentage point cut.
The strength of the move has buoyed London’s markets today and investors have pounced on a weak pound to buy UK stocks.
After rising over one per cent to a record high this morning, the FTSE 100 jumped a further 0.5 per cent on the Bank’s decision. The FTSE 250, which is typically more exposed to the domestic economy, has also risen 1.5 per cent through the day.
The pound, meanwhile, has fallen over one per cent against the dollar through the day.
“The Bank’s decision has added to the feel-good factor for the Footsie, with investors reassured that policymakers stuck to the expect script and cut interest rates with more expected this year,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
“The index surged to fresh record highs, as the falling pound buoyed multinationals with overseas earnings.”
Despite the Bank warning of a spike in inflation in the third quarter of the year, markets have been fuelled further by comments from governor Andrew Bailey that further rate cuts were likely this year.
Speaking in a press conference at the Bank of England today, Bailey said that inflation will be driven primarily by energy bills rather than underlying price pressures in the economy, potentially opening the door to further rate cuts this year.
“UK stocks are taking advantage of the increased odds of more rate cuts with the FTSE 100 delivering another strong performance and breaking a to a new all-time high,” said Daniela Hathorn, an analyst at Capital.com.
However, the Bank’s forecasts have signalled sluggish economic growth this year, halving its forecast from 1.5 per cent in November to 0.75 per cent, adding that Rachel Reeves’s decision to hike national insurance contributions for employers would impact both jobs and prices.