The FTSE 100 rose Thursday as the Bank of England paused its interest rate hiking cycle, leaving rates at the highest level in 15 years.
The Bank of England followed the Federal Reserve in keeping rates on hold by voting 6-3 in favour of rates staying at 5.25%.
“The news of rates staying the same indicates that we may have already reached the peak of the interest rate cycle, which will allow households to breathe a collective sigh of relief,” said Rachel Winter, Partner at Killik & Co.
The Bank of England was widely expected to keep rates on hold, and the decision itself provided investors with little they didn’t already know. However, the commentary around the decision will give markets food for thought in the coming days.
“Although this wasn’t a unanimous vote, there is a growing strength of feeling that previous rate hikes need more time to feed through. There are deepening concerns about the faltering economy as the high borrowing costs batter financial resilience and policymakers paint a stark picture of a stagnation scenario lasting until 2025,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown
Bank of England Governor Bailey provided reason for caution in his subsequent press conference, pointing to a potential softening in UK economic conditions in early 2023. Bailey also left the door open for further rate hikes by highlighting wage growth remained above long-term averages and inflationary pressures were yet to recede sufficiently.
“The minutes highlight that UK GDP is expected to have been flat in the third quarter, weaker than initial estimates. The economy only just eked out growth in August and there has been a surge in company insolvencies,” said Streeter.
Nonetheless, there was a positive tone in UK stocks as the FTSE 100 gained 1.2%, supported by UK-centric companies.
Housebuilders were among the top gainers as they avoided the pressure of higher rates and mortgage costs. Taylor Wimpey, Barratt Developments and Berkeley Group Holdings were up between 1.9%-3.4%.
Real Estate Investment Trusts with significant portfolios of UK commercial property also enjoyed a rally. Segro added 5.3%, and Land Securities gained 5.1%.
BT surged 7% after announcing cost control efforts were improving profitability, even though revenue was nearly precisely the same as last year.
Sainsbury’s shares jumped 4% as the supermarket steals market share with competitive pricing strategies.
Hikma was the top faller, down 5%, after releasing a downbeat trading statement.