The UK’s blue-chip stock index has hit a record high, as hopes of interest rate cuts this year drove down government borrowing costs.
Almost every share on the FTSE 100 rose on Friday, the fall in the value of the pound bolstering multinationals listed in London and propelling the index above 8,500 points for the first time.
The “Footsie”, which tracks the 100 biggest London-listed companies, rose 1.6% to hit a fresh intraday high of 8,533.43 points amid growing confidence that the Bank of England would ease monetary policy this year. It ended the day at a new closing high of 8505.22 points.
A three-day rally has driven the FTSE 100 over its previous record of 8,474 points, which was set in May 2024. It has gained about 4% since the start of the year amid wider gains on global stock markets.
The rally was spurred by weaker-than-expected UK retail sales figures for December released on Friday, after economic data this week showed inflation fell last month while the economy grew only modestly in November. This could encourage Bank policymakers to cut interest rates from 4.75% to 4.5% at their next meeting in early February.
“The FTSE 100 pushed sharply higher as a fresh bout of weak economic data poured cold water on the notion that the Bank of England would have to take a patient approach in the face of burgeoning inflation pressures,” said Joshua Mahony, an analyst at Scope Markets.
“Notably, the gains seen in the wake of a 0.3% decline in retail sales volume continue to maintain the ‘bad news is good news’ mantra for markets.”
The pound dropped by more than half a cent during Friday’s session, to $1.218, after the Office for National Statistics reported UK retail sales volumes fell by 0.3% in December. The data, which was seasonally adjusted to strip out the impact of Christmas and Black Friday late last November, was weaker than the City had expected.
The money markets now predict the Bank of England will make two or three quarter-point cuts to interest rates this year.
A week ago, two rate cuts in 2024 were not fully priced in. At that stage, the markets were reeling from a sell-off in UK government bonds that threatened to sink Rachel Reeves’s hopes of sticking to her fiscal rules.
However, bond prices have recovered this week, lowering the cost of government borrowing, as expectations of interest rate cuts have risen and the chancellor has insisted her fiscal rules are non-negotiable.
The yield, or interest rate, on 10-year UK debt has fallen back to 4.65%, the lowest since 7 January, the first day of the bond sell-off last week that pushed 10-year borrowing costs to the highest since 2008.
Meanwhile, 30-year bond yields, which hit the highest level since 1998 last week, have also fallen back.
Shares in the mining companies Glencore and Rio Tinto rose by 2.7% and 2.2% respectively after reports of talks being held last year about combining part or all of their businesses.
Among smaller companies in London, shares in the merchant banking group Close Brothers jumped 8% after the Financial Conduct Authority said it would provide clarity on the UK’s motor finance scandal later this year.
The City watchdog also said it would aim to prevent “further significant FCA-led consumer redress exercises”.
Last month, the FCA indicated that the scandal – involving commissions paid to car dealers when customers took out finance arrangements to buy a vehicle – could be as big as the mis-selling of payment protection insurance (PPI).
