After nearly closing at an all-time record high last night, the FTSE 100 extended gains on Tuesday, powered by a recovery in AI-ravaged shares and hopes of an interest rate cut in March. 

In a clear demonstration of how the FTSE 100 is not a reflection of the UK economy, London’s leading index rose as traders reacted to news that the UK unemployment rate hit 5.2%.

The Bank of England now looks set to cut interest rates in March as traders priced in two interest rate cuts in 2026 in response to a deterioration in the UK jobs market.

The pound fell against the dollar in response to the UK jobs numbers, which provided support for some of the FTSE 100’s overseas earnings-heavyweights. AstraZeneca, Shell, and GSK were all higher, helping lift the index.

Housebuilders were also in vogue, with Barratt Redrow topping the leaderboard at the time of writing. Housebuilders are in desperate need of a boost, and lower interest rates would be more than welcome by a sector struggling with falling sales.

Gains associated with interest rate hopes were enhanced by a rally in AI-hit stocks such as Experian, RELX, and Pearson that have found their feet after a painful sell-off since the start of the year.

Russ Mould, investment director at AJ Bell, explained: “Driving the UK market higher on Tuesday was a rebound in the plethora of stocks that sold off in recent weeks on fears of AI disruption.

“It was almost as if investors had scouted for the most affected names and bought everything on the list. Relx, Experian, Sage and Autotrader were all in the club and featured in the FTSE 100’s top risers’ list.

“Millions of pounds have been wiped off these names this year thanks to the launch of rival AI services. Investors initially panicked but might now be taking the view that too much bad news is now in the price and these names could have what it takes to fight off AI disruption.”

RELX directors are certainly taking this view, and the CEO and CFO have made encouraging share purchases in recent days.

Elsewhere, Antofagasta kicked off a busy week of FTSE 100 mining updates with blowout 2025 results that revealed the extent of the benefit of higher copper prices. 

The group increased revenue by 30% and EBITDA by 52%, rewarding investors with a 106% increase in the full-year dividend. 

“It’s a great time to be a mining stock, or indeed an investor in mining stocks,” said Chris Beauchamp, Chief Market Analyst at IG.

“The huge gains in commodity prices are translating into a revenue and profits bonanza for these companies, making them the new must-have for investors in a what is a tremendous resurgence for physical economy stocks after years of tech-driven buying. Much of it is in the price for now, as seen by the muted reaction to Anto’s numbers, but the direction of travel is clear.”

Glencore, Rio Tinto and Anglo American will also report 2025 results later this week.

Debenhams Group has confirmed plans for an approximately £35 million equity raise after being forced to respond to market speculation about a possible funding round.

The AIM-listed online fashion platform, formerly known as Boohoo Group, said the proceeds would bolster liquidity and reshape its balance sheet, with the board targeting a net debt-to-adjusted EBITDA ratio of around 2x for the financial year ending February 2027 and below 1x by year-end.

Directors Dan Finley, Mahmud Kamani, and Iain McDonald intend to participate at an issue price of 20p per share, and the company will hit up institutional shareholders in the coming days before formally launching the raise.

Announcing a funding round before it gets underway in earnest isn’t ideal, and news of the round inevitably hit shares on Tuesday. The share price fell by around 10% to trade just above the 20p price proposed for the funding round.

Trading holds up

The funding round comes against a backdrop of improving operational performance and a turnaround plan the company says is ‘going apace’. Whether this will be enough to boost shares post-funding round remains to be seen.

Debenhams used this morning’s announcement to reiterate its guidance of £50 million adjusted EBITDA for the current financial year to February 2026, in line with upgraded forecasts issued in late January.

It expects double-digit EBITDA growth the following year.

The group’s cost-cutting programme has been aggressive. Fixed costs have been brought down to an exit rate of £130 million, from £175 million, with a £100 million target still in sight. All brands are now profitable on an EBITDA basis.

Investors may also be encouraged by the improvement in cash dynamics over FY27. Capital expenditure is set to halve from roughly £16 million to £8 million. Lease costs should fall from £17 million to around £13 million, dropping further to just £6 million once a vacant US property is exited.

There are savings across the board, but investors will need to see signs of stabilisation in the top line to get truly excited about the future.

UK unemployment rose to 5.2% in the three months to December 2025 as the impact of Labour’s economic policies hit the jobs market.

The last quarter of 2025 saw UK economic activity flatline as businesses reacted to the uncertainty around the budget and associated tax increases. We now know this led to slower wage growth and higher unemployment.

“UK unemployment has climbed to 5.2%, its highest level in nearly five years, while private-sector wage growth slowed to 3.4% which is the weakest pace since 2020,” said Lale Akoner, global market analyst at eToro.

“It is clear the UK labour market is cooling and inflation pressures from wages are fading.”

Wage inflation is one of the key indicators cited by the Bank of England as a reason to be cautious around interest rate cuts. Nowthat wage growth is slowing alongside rising unemployment, the BoE will have no excuse not to cut interest rates at the upcoming meeting in March.

“And crucially, from the perspective of the Bank of England and the outlook for inflation, this weakness is continuing to pull down on wage growth,” explained Luke Bartholomew, Deputy Chief Economist, at Abderdeen.

“Private sector pay growth in particular has essentially returned to an inflation-target consistent rate, meaning that as and when inflation falls to 2% later this year it is likely to stay there rather than start increasing again. Of course, the inflation data tomorrow could throw a wrench in the works, but for now it seems there is a clear case for a further rate cut at the Bank’s next meeting in March, and we continue to expect rates to fall to 3% later this year.” 

Interest rate markets are now pricing two interest rate cuts in 2026.