The FTSE 100 rose on Thursday after the Bank of England cut interest rates and warned of the impact of trade tariffs on UK GDP growth.
The Bank of England has cut interest rates to 4.25% as it seeks to mitigate the negative economic consequences of Donald Trump’s tariffs.
“Despite the UK economy growing more than predicted in February (latest data available), policymakers remain laser-focused on bolstering domestic momentum,” said Myron Jobson, Senior Personal Finance Analyst, interactive investor.
“The latest rate cut signals a bid to turbocharge GDP growth, ensuring the UK can weather external headwinds while fostering a more resilient economic outlook.”
London’s leading index was 0.2% higher in the immediate reaction to the decision, after being as much as 0.4% higher beforehand.
After keeping rates on hold in March, the Bank of England made its fourth interest rate cut since it started reducing rates from 5.25% in August last year. Interest rate futures markets are predicting another three cuts this year.
Investor sentiment also received a welcome boost from reports of a trade deal between the US and UK which is due to be released later on Thursday. Details are scant, but any progress will be a major positive for the UK and its equity markets.
“A trade deal between the two countries could provide more certainty for UK businesses as to how the future will look, so they can plan accordingly,” explained Russ Mould, investment director at AJ Bell.
“It might also put the UK in a more favourable light with foreign investors looking to dial down US exposure and wondering where they should reallocate money.”
FTSE 100 movers
3i shares rose 1% after the private assets focused investment trust reported a 10.1% return for the year and 6.3% increase in the target dividend.
The interest rate cut also helped private equity trust shares in the hope that the private equity sector will enjoy a pickup in activity fueled by lower rates.
“With the Bank of England finally trimming the base rate to 4.25%, we could well see a noticeable shift in M&A appetite, especially from private equity, who have been slightly more cautious of late with such comparatively high rates,” said Hamish Martin, Partner at LAVA Advisory Partners.
Next shares were firmly higher after the retailer produced yet another resoundingly strong trading update. Sales jumped 11.4% in the first quarter, well ahead of management’s expectations.
“Next has always been a master at managing expectations, recognising that as a public company it always pays to under-promise and over-deliver and it has done it once again with the latest update,” Russ Mould said.
“First-quarter trading was ahead of expectations, helped by warmer weather causing people to pull forward purchases of summer clothing.
“Prudently, Next is expecting a pullback in the current quarter and it has left sales guidance for the year as a whole unchanged – although it has nudged profit guidance higher, reflecting just how strong the increase in full-price sales was in the first quarter.”
IMI was the FTSE 100’s top riser, gaining 5%, after the engineering firm reported strong order growth for its Process Automation segment.
“We are pleased to reconfirm our guidance for the full year,” said Roy Twite, Chief Executive of IMI.
“We continue to expect to deliver another year of mid-single digit organic revenue growth in 2025. As expected, organic revenue in the first quarter was modestly lower than last year and Group margins were up.
Airtel Africa shares fell 7% and were at the bottom of the FTSE 100 leaderboard after being hit by currency swings.