The FTSE 100 recovered losses on Thursday as the Bank of England kept rates on hold but signalled the next interest rate cut could be just around the corner.
London’s leading index was trading at 10,395, down 6 points, shortly after the Bank of England rate decision was released.
The Bank of England was widely expected to hold rates at 3.75% and wait for a clearer picture of inflation before moving to cut rates again. What wasn’t expected was the tight 5-4 split in favour of holding rates, which suggests the bank could cut interest rates at its next meeting.
Interestingly, Governor Bailey voted for a hold, and he could be the one who makes the difference next time around.
“So Governor Bailey is set to remain the swing vote in determining the path of policy,” said Luke Bartholomew, Deputy Chief Economist, at Abderdeen.
“As long as inflation moderates further over coming months, we continue to expect he will swing behind further cuts in the not too distant future. A cut at the next Bank meeting in March is most certainly on the table. And even if it takes a bit longer for the next cut to come through, we still think there is a strong case for rates to eventually fall to 3% later this year.”
In an immediate reaction, the FTSE 100 surged around 35 points, and GBP/USD lost 50 pips in seconds.
AI adopters rally
After several shockingly bad sessions from AI adopters Experian, RELX, and the London Stock Exchange Group, bargain hunters began to step in and pick up shares of the companies that were highly regarded by investors not that long ago.
The London Stock Exchange Group was the FTSE 100’s top riser, adding 7% while RELX rose 3.3%.
Vodafone was the FTSE 100’s top faller after the telecoms group released a mixed trading update. Shares were down 7% at the time of writing.
“Recent news had given investors hope the problems in Vodafone’s largest market – Germany – were behind it. However, its third-quarter update offered a serving of schadenfreude for its detractors as German growth slipped to a trickle,” said Dan Coatsworth, head of markets at AJ Bell.
“This overshadowed a more robust performance elsewhere and raised questions about whether the regulatory-driven issues in the German market were truly behind the company. If November’s first dividend hike in seven years gave a signal that Vodafone’s recovery, following years of stagnation, was finally in motion that signal feels patchier today.
“Vodafone may still be on track to deliver full-year profit and cash at the upper end of guidance, and the integration of Three UK may be progressing as planned but after an extended period of regular disappointments, shareholders can be forgiven for being cynical.”
Housebuilders had been notably weaker going into the rates decision, but receiveda minor reprieve from the tight interest rate decision. Persimmon was down 2.7% and Barratts lost 3%.
Today feels like the first time in a couple of weeks preciosu metals weren’t dominating headlines and miner Fresnillo shares eased 2% lower.