The FTSE 100 was clinging onto gains on Thursday after the Bank of England cut UK interest rates to 3.75%, the lowest level since early 2023, in a ‘hawkish’ interest rate cut.
The Bank of England was widely expected to cut interest rates after a lower-than-expected inflation reading yesterday, so the 0.25% cut was baked into the cake ahead of the decision.
Nonetheless, the Christmas cheer of lower borrowing costs was evident in an FTSE 100 rally this week that takes the index to within touching distance of the 10,000 mark.
However, London’s leading index was just 3 points higher at the time of writing, after a 5-4 vote split raised questions about how many more rate cuts we’ll see next year.
“The Bank of England has slashed interest rates for the fourth and final time this year after a back-to-back fall in inflation figures,” said Brad Holland, director of investment strategy at J.P. Morgan Personal Investing.
“The decision to cut rates to 3.75% reflects a mixed economic picture, with UK growth relatively flat over the second half of this year while the latest inflation data came in softer than expected.”
Markets were on the front foot ahead of the Bank of England decision, after strong results from US chipmaker Micron Technology helped ease fears about the overvaluation of AI-related stock and sent US futures higher.
“US futures are pointing to a brighter start this afternoon, with stocks set to open higher,” explained Matt Britzman, senior equity analyst, Hargreaves Lansdown.
“The revolving wheel of AI news delivered a blowout quarter from chipmaker Micron after yesterday’s close, offering a timely antidote to worries that the AI spending boom is getting ahead of itself. With softer jobs data now behind us, the spotlight turns firmly to today’s inflation reading, which could set the tone for where markets head next.”
The big UK corporate story of the day was the appointment of Meg O’Neill as the first female CEO of BP, signalling a new chapter for the oil major that won’t be focused on renewables.
“The departure of Murray Auchincloss as BP CEO probably can’t be chalked up as a major surprise, but the timing and suddenness of it can be,” said AJ Bell investment director Russ Mould.
“Auchincloss has struggled with the difficult task of turning around BP’s fortunes since replacing Bernard Looney on a permanent basis less than two years ago. Looney left under a cloud regarding his personal conduct and after having commenced on an ambitious energy transition strategy that hit BP’s shares.
“Auchincloss has walked back on BP’s green push but has had his feet to the fire ever since activist investor Elliott joined the shareholder register earlier this year. The ultimate arbiter – the share price – doesn’t speak in Auchincloss’ favour, with a total return of just 5% under his tenure compared with 39% over the same period for the FTSE 100 and 19% for its main rival Shell.”
Investors will hope O’Neill can boost BP’s valuation, which still trades at a material discount to peers.
Whitbread shares were the top riser, 6% higher at the time of writing, after Corvex Management took a 6% stake in the group and demanded a third-party strategic review.
There were few losers on the session with most stocks trading higher. Burberry was the biggest faller as traders booked short-term profit.