The FTSE 10 surged through 10,600 on Wednesday as hopes of an interest rate cut swelled after UK inflation fell to 3%.
Any doubt that the Bank of England would cut rates in March after yesterday’s poor UK jobs data has surely been extinguished by today’s inflation data, which leaves the voting committee little choice but to reduce borrowing costs.
“A month-on-month drop in both headline and core inflation certainly delivers the goods for the UK economy, clearing the way for a fresh rate cutting campaign by the BoE,” said Chris Beauchamp, Chief Market Analyst at IG.
“It looks like Britain, and her embattled government, have managed to come through the summer’s hotter run of inflation, and provides some hope that we can see a sustained improvement in employment and growth figures by year end. Both the PM and the chancellor will hope the news arrives earlier, given the pressure on them both.”
The question on investors’ minds now is how many more rate cuts the Bank of England will make in 2026, and the market reaction suggests some are hopeful of additional support from the bank later this year.
London’s leading index was 0.8% higher at 10,648 at the time of writing.
“The FTSE 100 made new record highs above 10,600 as inflation dropped more sharply than expected to a 10-month low,” said AJ Bell investment director Russ Mould.
“This increases the chances of an interest rate cut when the Bank of England meets next month – which is typically good news for stocks and shares in general. It is also a positive for the FTSE 100 given the likely knock-on effect on the pound.
“Lower rates typically translate into weaker sterling which, in turn, flatters the overseas earnings which dominate the index.
“Mining, energy and defence firms were all in demand in early trading after results from Glencore and BAE Systems. Oil prices were higher as Trump rattled the sabres on Iran amid ongoing negotiations between Tehran and Washington over the former’s nuclear programme.”
Antofagasta was the FTSE 100’s top riser, adding 4%, as the copper miner rebounded after a wobble yesterday.
Glencore was the second top riser, gaining 3%, on the back of 2025 number. Adam Vettese, market analyst for eToro, said: “Glencore has delivered one of those classic mixed mining updates, indicating the company is better under the bonnet than the headline numbers suggest. Core earnings dipped 6% to $13.5bn as weaker coal prices offset record copper, but the second half showed a clear improvement and the trading arm once again provided a solid cushion.
BAE Systems was also among the risers after releasing its 2025 results that confirmed the benefits of increased defence spending globally. Revenue increased 10%, driving a 12% rise in EPS.
“BAE had been expected to post a very strong set of numbers, and today’s figures appear to have done the trick. After such huge gains and the corresponding surge in its valuation, the bar for outperformance has been set much higher, but for the moment the group appears capable of keeping shareholders happy,” said Chris Beachamp, Chief Market Analyst at IG.