The FTSE 100 spiked higher on Thursday after the Bank of England announced it would hold rates at 5.25% but said the decision was ‘finely balanced’ suggesting we could well see borrowing costs fall in the coming months.

The Bank of England Monetary Policy Committee voted 7-2 to hold rates, with members opting to wait for further data before deciding to cut rates. UK CPI inflation fell back to the BoE’s target 2% yesterday but this hasn’t been enough to shift the dial on rates on this occasion.

However, the commentary would suggest an August rate cut is a likelihood should inflation remain at or around current levels between now and their next meeting.

The suggestion interest rates could be cut in August sent the pound lower and the FTSE 100 in immediate aftermath to trade 0.3% higher.

The Monetary Policy Committee voted by a majority of 7-2 to maintain #BankRate at 5.25%.
Find out more: https://t.co/1nN6lt3Feu pic.twitter.com/QfcBpmvXyT

— Bank of England (@bankofengland) June 20, 2024

Michael Brown Senior Research Strategist at Pepperstone provided insight into the BoE’s thinking proposing the first rate cut comes in August followed by one more before the end of the year.

“The next move in Bank Rate remains likely to be a cut, probably at the next meeting in August, as the MPC continue to “keep under review” how long to maintain the current level of restriction,” said Michael Brown.

“Such a cut, however, hinges on the disinflation process continuing, and the June CPI figures not bringing any nasty surprises. That said, such a cut is unlikely to be a unanimous decision, with the MPC’s hawks likely still concerned about intense earnings pressures, and sticky services prices. These concerns should, more broadly, see the pace of policy normalisation after the first cut remain relatively gradual, with just one further 25bp cut, probably in November, the base case for the remainder of 2024.”

The prospect of rate cuts later this year fired up the interest rate-sensitive sectors, including housebuilders, REITs and consumer stocks on Thursday.

Land Securities jumped 3% while Barratt Developments gained 2.8%.

The prospect of consumers having a little more spare cash in their pockets will be more than welcomed by retailers and investors jumped into JD Sports shares sending the stock more than 2% higher.

Ocado shares were the worst-performing FTSE 100 stock – sinking 12% – after announcing it was pausing go-live of operations with a partner in Canada.

NatWest has swooped on Sainsbury’s banking assets in one of the bank’s most notable acquisitions in UK retail banking since the financial crisis.

Sainsbury’s had previously announced it was seeking to streamline its business by restructuring its financial services business, so today’s announcement makes a lot of sense for both parties.

Sainsbury’s will retain its Argos Financial Services, which isn’t included in the deal. Once the transition is finalised, the transaction is expected to return capital of £250m to Sainsbury’s. 

“The decision to phase out these operations isn’t a surprise, but shows the grocer’s willingness to grasp the nettle and refocus on its core business,” said Sophie Lund-Yates, lead equity analyst, Hargreaves Lansdown.

“Competition in the supermarket space is fierce and remaining competitive is a very expensive undertaking, and one Sainsbury’s has fared better at than feared. Other finance assets, including ATMs and travel money are remaining in Sainsbury’s fold, as their capital light and profitable models remain attractive to the group.

“Around £2.5bn of assets are making their way to NatWest, via credit cards and unsecured lending. The change shouldn’t make too much difference to existing customers, and from NatWest’s perspective, the deal makes a lot of sense, but is unlikely to markedly move the dial.”

Bridgepoint Advisers has made a recommended £626 million cash bid for Alpha Financial Markets Consulting (Alpha FMC), the London-listed financial service consultancy.

Alpha FMC would be the latest UK-listed company to be snapped up by private equity groups seeking out undervalued companies.

Under the proposed deal, Alpha FMC shareholders would receive 505p per share in cash. This represents a premium of 50.7% to Alpha FMC’s closing share price of 335p on 30 April 2024.

The 505p per share offer prices Alpha FMC at approximately 15.3 times its pre-IFRS 16 adjusted EBITDA of £39.9 million for the year ended 31 March 2024. On a post-IFRS 16 basis, the multiple is 14.5 times adjusted EBITDA of £42.2 million.

Bridgepoint sees Alpha FMC as an ideal addition as the sector is expected to benefit from digital transformation, increasing regulation, product complexity, cost pressures and growth in assets under management.

Bridgepoint has extensive experience investing in specialist consulting firms as well as expertise across asset management, insurance and financial technology. Its investments in this space include eFront, Calypso, Kyriba and Fenergo.

The 505p per share final offer will not be increased unless a rival bid emerges or with UK takeover regulator consent. Alpha FMC’s board is recommending that shareholders accept the “fair and reasonable” offer.

YouGov investor had a nasty shock on Thursday after the research and data group slashed its revenue forecasts and issued disappointing profit guidance. 

In March of this year, the company buoyed investors with talk of £650m revenue in the medium term as the benefits of an acquisition were felt. 

Fast forward barely three months and the company has blamed lower data product sales bookings for full year revenue not exceeding £327m.

YouGov shares tanked over 30% as a result of the negatively revised guidance on Thursday. With shares trading at 540p, the YouGov stock is significantly below 52-week highs set in February 2024.

YouGov said sales of its data products were slow and some of the integration of a recent acquisition may slip into the next financial year. Suggesting to investors they could achieve revenues of £650m in the medium term now seems somewhat premature.

“Casual observers of YouGov might assume the company would enjoy a bumper time during the election but its polling operation makes a relatively modest contribution to group revenue,” said AJ Bell investment director Russ Mould.

“The data analytics side is more important and this is where the company is struggling. The company invested for an expected acceleration of growth in the second half of its financial year which, in classic fashion, failed to materialise.”

The FTSE 100 reversed early losses on Wednesday after UK inflation fell back to the Bank of England’s 2% target in May.

One would question what the market is actually looking for from inflation data to gauge the Bank of England’s timing of interest rate cuts, given the FTSE 100 dropped and the pound spiked higher following news UK inflation had finally fallen back to target after 34 months.

London’s leading index hit lows of 8,164 in very early trade before grinding higher through the rest of the session to trade 0.15% higher at 8,202 at the time of writing.

“Inflation hitting the Bank of England’s 2% target might not be the magic moment desired by investors. The pound jumped on the news, implying little chance of the Bank cutting rates at its meeting tomorrow. Few thought it would happen anyway, but today’s figures make it even less likely,” says Dan Coatsworth, investment analyst at AJ Bell.

The early drop in stocks and jump in the pound stemmed from disappointment around headline CPI. Even though the inflation fell back to 2%, it was higher than economist expectations of 1.9%, suggesting prices are still running hotter than initially thought and could curtail the BoE’s willingness to cut rates.

“Inflation hitting target means many will be expecting a cut to interest rates at the Bank’s meeting tomorrow. However, it would be very unlikely for the ratesetters to cut interest rates during an election campaign,” said Laura Suter, director of personal finance at AJ Bell.

“The future path for inflation – and so rates – will be impacted by whoever becomes prime minister and how their fiscal policy shapes up. It’s highly likely the Bank will want to wait to see the outcome of the election and the final economic plans before making that first cut. With no meeting in July, that means all eyes are now firmly on the August MPC meeting for our first potential cut to rates.” 

The uncertainty around an interest rate cut weighed on the housebuilders, who were among the worst performers on Wednesday. A soft set of full-year results from Berkeley Group didn’t help the sector’s cause, with confirmation of a drop in revenues and profits sending the stock 4.5% lower on the day.

Persimmon was not far behind with a 3.8% drop. Barratt Developments slipped 2.7%.

Smurfit Kappa was the best performer on the news that, following its merger with Westrock, the enlarged group will be tracked by US indices. At the time of writing, it was 4% higher.