The UK's FTSE 100 index reached a new peak on Friday, fueled by a decline in the value of the pound and rising expectations for an interest rate cut by the Bank of England in February. The data also revealed a surprise drop in British retail sales, adding to the economic challenges facing the UK.
The UK's blue-chip FTSE 100 index reached an all-time high on Friday, fueled by a weakening pound and anticipation of an interest rate cut next month. This surge came after surprisingly weak retail sales data, raising expectations for the Bank of England (BoE) to lower borrowing costs. The FTSE 100 (.FTSE) climbed 1.4%, marking its fourth consecutive weekly gain, and the midcap index (.FTMC) added 0.3%, achieving its best weekly performance since October 2023.
December witnessed an unexpected decline in British retail sales, according to data released. This drop increases the risk of economic contraction in the fourth quarter, adding to the difficulties faced by Finance Minister Rachel Reeves. Gilt yields dipped across the curve, with the yield on 10-year notes easing to 4.661%. Sterling weakened by 0.6%, benefiting companies that generate most of their revenue overseas. Market traders predict an 82% probability of a 25-basis-point rate cut by the BoE in February, with expectations of 66 basis points in cuts throughout 2025, as indicated by LSEG data. UK equities experienced significant gains this week following data revealing a slowdown in British inflation last month and softer-than-anticipated core U.S. inflation. These developments have reignited bets on further rate cuts by both the BoE and the Federal Reserve. Next week will see focus on Donald Trump's inauguration as U.S. president, with investors eagerly awaiting new policies, including potential trade tariffs. Among individual stocks, Glencore (GLEN.L) increased by 2.7%, while Rio Tinto's London-listed shares (RIO.L) rose by 2.2%. A source revealed to Reuters that Glencore had approached Rio Tinto late last year to explore a merger of the two major copper producers, but these discussions are no longer active. Smiths Group (SMIN.L) added 5.5% after U.S. activist investor Engine Capital, holding roughly a 2% stake in the engineering firm, urged the British company to either sell itself or parts of it. Betting and gaming firm Evoke (EVOK.L) climbed 5.5% after forecasting 2024 core profit to exceed market expectations, driven by growth in its online business and favorable sports results in the fourth quarter
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