FTSE 100 Hits New Record as Bank of England Signals Potential Rate Cut 

On the 9th of May, the Bank of England held the main bank rate steady at 5.25%, which hasn’t been this high since 2008 and was anticipated. Yet, two of the committee’s members were in favor of a 0.25 percentage point cut, an increase from the solitary member at the last meeting.  

Additionally, while they have upgraded the economic growth forecast, the inflation outlook has been adjusted downward. The Bank’s estimates predict a decrease in the Bank Rate to 3.75% by the end of the projected period. It is anticipated that the UK’s economy will expand by 0.4% in the first quarter of 2024 and by 0.2% in the second, but it is likely that demand will stay behind potential supply growth, creating some economic slack. The consumer price index is projected to level out near the 2% goal shortly, albeit there are potential hazards due to geopolitical tensions. The Monetary Policy Committee stresses the importance of maintaining a tight monetary policy to ensure inflation returns to the 2% target sustainably, affirming their readiness to modify policy as the economic data dictates. 

(UK Historical Interest Rates) 

On Thursday, the FTSE 100 reached a new all-time high of 8,381.35, propelled by the Bank of England’s approach toward reducing interest rates. The development positively affected sectors sensitive to interest rate changes, such as homebuilders, helping them to rebound from earlier losses. BAE Systems saw a rise of 0.8% in its shares, backing its forecast of continued growth in sales and earnings amid geopolitical tensions. Likewise, the engineering company IMI Plc maintained its outlook for the full year. On the downside, 3i Group experienced a more than 3% fall after announcing its net asset value per share for fiscal year 2024 fell slightly short of expectations and expressed a cautious future outlook. In addition, HSBC’s shares declined by 4% as it began trading without the entitlement to the latest dividend. 

The British pound dipped slightly below $1.25 after Governor Bailey stated, “It is likely we will need to cut the bank rates over the coming quarters and make monetary policy less restrictive, possibly more than currently priced into market rates.” 

(FTSE 100 Yearly Chart) 

(GBPUSD Monthly Chart) 

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