The FTSE 100 was higher on Thursday after the Bank of England voted to keep interest rates on hold, opting to wait for inflation to fall further before bringing borrowing costs down.
The Bank of England Governor said the improvement in inflation was notable and expected it to fall further in the coming months.
However, investors may fear waiting for inflation to fall further before cutting rates may increase the risk of damaging economic consequences.
“While markets are still anticipating that rate cuts will happen this year, and are likely in the spring, this week has been too early to reduce rates and ultimately increase the spending power of consumers, which could in turn hamper efforts to get inflation back near the 2% target. There’s going to be some more short-term pain in the hope of long-term economic benefit,” said James McManus, chief investment officer at Nutmeg.
The FTSE 100 was 0.3% higher at the time of writing after retreating from the session’s best levels.
The Bank of England followed the Federal Reserve in keeping rates on hold and signalling to markets they must wait a little longer for interest rates to be cut. US stocks finished heavily in the red overnight as the Fed chair took a hawkish tone in his press conference and dashed hopes of a rate cut in March.
“US equities were rocked overnight with the market punishing big technology stocks that had failed to deliver in line with the hype surrounding AI in recent months. The S&P 500 index fell by 1.6% and the tech-heavy NASDAQ composite tumbled by 2.2%. The Federal Reserve played its part too,” said Steve Clayton, head of equity funds, Hargreaves Lansdown.
“The Fed met and held interest rates steady. This was widely expected but Fed Chair, Jay Powell, then produced a bucket of cold water and poured it, saying that the degree of confidence that the Fed would require before cutting was unlikely to be achieved before their next meeting in March.”
FTSE 100 movers
It was surprising to see the FTSE 100 gain on the open, but investors will be encouraged UK stocks were able to withstand disappointment around US interest rates.
Constituents of the FTSE 100 were fairly evenly split between gainers and losers on Thursday, with banks and miners supporting the index and helping to offset losses in housebuilders and retailers.
Shell added 2.3% after announcing another bumper share buyback despite full-year profits sinking due to lower oil prices.
Fresnillo was the top faller as precious metals sank on the Federal Reserve’s hawkish stance.
