The euphoria that swept across equity markets in the wake of Donald Trump’s victory yesterday was nowhere to be seen in UK stocks on Thursday, with the FTSE 100 falling after the Bank of England cut interest rates to 4.75%.
London’s leading index was down marginally at the time of writing, having spiked lower shortly after the Bank of England delivered a 0.25bps interest rate cut but warned the budget would be inflationary, slowing the pace of rate cuts in the coming months.
“This decision was expected by the market, but the timeline for future cuts has changed significantly over the past fortnight,” said James McManus, chief investment officer at J.P. Morgan owned digital wealth manager, Nutmeg.
“The significant increases to government spending set out in the Budget as well as a rise in wages, underpinned the OBR’s forecast for elevated inflation next year. It means a further cut before Christmas is now uncertain and markets expect only two more cuts of 25bps by September 2025, down from three at the previous meeting in September.”
Equity bulls who were hoping for support from lower borrowing will also be sorely disappointed by comments in the Bank of England press conference that inflation is projected to fall to target over the medium term without major changes in rates. This, coupled with the budget last week, means UK rates are likely to stay where they are in the coming months.
“The next 25bp Bank Rate cut, then, is likely to come in February, in conjunction with updated forecasts,” said Michael Brown Senior Research Strategist at Pepperstone.
“If, at that stage, policymakers have greater confidence in the disinflationary path being well-embedded, the pace of normalisation could well quicken through the early part of 2025. Quarterly cuts, though, remain the base case for now.”
In addition to bad news on rates, UK equity investors were digesting pretty poor corporate updates from BT Group and Autotrader that weighed on sentiment.
BT Group lost 6% after lowering its revenue forecast for the full-year period.
“BT shareholders enjoying a near 50% recovery in the share price this year from its lows may have had the wind taken out of their sails this morning reading this update,” said Adam Vettese, market analyst at investment platform eToro.
“The company has warned that revenue will be lower than previously indicated partly due to tough market conditions. The broadband market is extremely competitive and saturated with choice for consumers and BT has lost out as a result.”
Autotrader was the top faller after saying the second-hand car market remained ‘challenging’. Shares were down 7% at the time of writing.