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FTSE 100 extends gains after BoE suggests August rate cut

The FTSE 100 spiked higher on Thursday after the Bank of England announced it would hold rates at 5.25% but said the decision was ‘finely balanced’ suggesting we could well see borrowing costs fall in the coming months.

The Bank of England Monetary Policy Committee voted 7-2 to hold rates, with members opting to wait for further data before deciding to cut rates. UK CPI inflation fell back to the BoE’s target 2% yesterday but this hasn’t been enough to shift the dial on rates on this occasion.

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However, the commentary would suggest an August rate cut is a likelihood should inflation remain at or around current levels between now and their next meeting.

The suggestion interest rates could be cut in August sent the pound lower and the FTSE 100 in immediate aftermath to trade 0.3% higher.

Michael Brown Senior Research Strategist at Pepperstone provided insight into the BoE’s thinking proposing the first rate cut comes in August followed by one more before the end of the year.

“The next move in Bank Rate remains likely to be a cut, probably at the next meeting in August, as the MPC continue to “keep under review” how long to maintain the current level of restriction,” said Michael Brown.

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“Such a cut, however, hinges on the disinflation process continuing, and the June CPI figures not bringing any nasty surprises. That said, such a cut is unlikely to be a unanimous decision, with the MPC’s hawks likely still concerned about intense earnings pressures, and sticky services prices. These concerns should, more broadly, see the pace of policy normalisation after the first cut remain relatively gradual, with just one further 25bp cut, probably in November, the base case for the remainder of 2024.”

The prospect of rate cuts later this year fired up the interest rate-sensitive sectors, including housebuilders, REITs and consumer stocks on Thursday.

Land Securities jumped 3% while Barratt Developments gained 2.8%.

The prospect of consumers having a little more spare cash in their pockets will be more than welcomed by retailers and investors jumped into JD Sports shares sending the stock more than 2% higher.

Ocado shares were the worst-performing FTSE 100 stock – sinking 12% – after announcing it was pausing go-live of operations with a partner in Canada.

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