FTSE Hits New All-Time High as Market Expects Rate Cut Today
The UK Stock market shakes off trade tariff risks and sluggish economy on hopes of dovish BoE policy.
- Investors expect BoE to cut rates by 25 basis points
- Two more cuts forecast for 2025
- Focus pivots to clues from central bank on policy outlook
The FTSE hit a new all-time high today of 8,714, up 0.74% on the day. The UK index is outperforming its European peers such as the DAX and CAC both up around 0.50%.
From the start of this week the FTSE gained nearly 2%, while the DAX and the CAC have gained close to 1.5%.
Investors Bet on Rate Cut at Today’s MPC Meeting
The market sees the BoE cutting rates by 0.25% today, from 4.75% to 4.50%. The UK’s central bank has the highest interest rates of the G7.
The BoE has only cut rates twice so far since the start of the pandemic in 2020. The central bank has had to juggle a stubborn inflation rate and a sluggish economy.
Investor focus has turned to what signs the MPC may give on their policy plans for 2025. I would say the market is betting for rate cuts to happen in H1, to keep this current rally alive.
FTSE Live Chart
Sluggish Economy & Inflation; Concerns for BoE
Economists see growing signs of stagnation, as Britain’s economy barley posted GDP growth in 2024. At the same time, inflation remains stubbornly above the BoE 2% target.
The central bank’s economic projections are likely to show that growth will be weaker in the near term, while inflation is forecast higher than at its meeting 3 months ago.
The BoE will publish its economic projections today at 12:00 GMT, 30 minutes before the governor Bailey and senior officials hold a press conference.
The market is pricing 3 interest rate cuts for 2025, while a Reuters poll predicts 4 cuts as the most likely outcome.
Dovish monetary policy would be good news for the Prime Minister and Chancellor of the Exchequer. The UK cabinet is under pressure after their budget is expected to require more taxation to meet higher spending goals.
However, some economists see inflation rising going into 2025, due to a reversal of energy prices and increase in labor costs.
Some forecast see inflation rising to 3% to 3.5% by April, making further interest rate cuts a difficult task for the BoE.
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