The FTSE 100 finished Thursday higher after the Bank of England raised rates by 50bps to 4% and signalled a milder UK recession than first thought.
The Bank of England also amended their inflation forecast to just 4% by the end of the year.
“The Bank is now projecting that inflation will fall to 4% by the end of the year, which will be music to the ears of the PM, who has promised a halving in the inflation rate – though the Bank might legitimately be a little peeved the government is trying to claim credit for their efforts,” said Laith Khalaf, head of investment analysis at AJ Bell.
“Inflation is now forecast to fall to 0.4% in 2026, which begs the question why the Bank is continuing to raise interest rates.”
The Bank of England was joined by the ECB in hiking 50bps on Thursday. However, the biggest story in town was the US Federal Reserve’s more conservative 25bps rate hike last night.
The slowing pace of US rate hikes and generally dovish comments from the Federal Reserve Chair proved ample to support global risk assets and the Bank of England’s instalment helped boost momentum in equity markets.
The Federal Reserve said that although rates would continue to rise in 2023, it would be at a slower pace than 2022. Bond yields fell across major economies as a result – this is welcome news for equity investors.
The Fed Chair really fired up equity bulls when as he said the “disinflationary process has started”, opening the doors for easier monetary policy in the future.
The FTSE 100 touched 7,840 in mid afternoon trade before falling back to 7,820 at the close. US stocks stormed ahead with the S&P 500 jumping 1.5% and the NASDAQ surging 3%.
Shell record profits
Shell provided substantial support for the index on Thursday following the confirmation of record profits in 2022 due to higher energy prices. Shell earnings hit $40bn in 2022, although some areas of the business started to slow down in the 4th quarter.
Following a sharp rally in Facebook-owner Meta last night and the NASDAQ today, Ocado once more demonstrated its tech stock attributes as it jumped 11% in a broad global tech rally.
The tech-heavy Scottish Mortgage Trust was also among the top risers, gaining 6%. The trust’s largest holdings include Tesla, Tencent, and Amazon. Moderna is the trust’s top holding, accounting for 10% of the portfolio.
JD Sports also gained 11% meaning the retailer has nearly doubled from lows at the end of 2022. The prospect of lower inflation could mean increased discretionary spending on JD’s £160 trainers.