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Finance

FTSE 100 touches record high as growing rate cut bets dent sterling

Published by Global Banking and Finance Review

Posted on January 25, 2025

Featured image for article about Finance

(Reuters) - The UK's blue-chip FTSE 100 hit an all-time high on Friday, supported by a weaker pound after much softer than expected retail sales data boosted expectations of an interest rate cut next month.

The FTSE 100 rose 1.4% to hit record highs and logged its fourth straight weekly gain. The midcap index rose 0.3% and registered its best weekly performance since October 2023.

British retail sales fell unexpectedly in December, according to data that raised the risk of an economic contraction in the fourth quarter, adding to the challenges facing finance minister Rachel Reeves.

Gilt yields moved lower across the curve, with the yield on 10-year notes easing to 4.661%. Sterling slid 0.6%, lifting shares of companies that earn most of their revenues overseas.

Oil giant Shell rose 1.2%, while consumer goods company Unilever added 1.6%.

Traders see an 82% chance of a 25-basis-point rate cut by the Bank of England (BoE) in February, and are pricing in 66 basis points in cuts during 2025, LSEG data suggests.

UK equities saw sharp gains this week after data showed British inflation slowed unexpectedly last month and core U.S. inflation was softer than expected, reviving bets of further rate cuts by the BoE and the Federal Reserve.

Donald Trump's inauguration as U.S. president will be in the spotlight next week, with investors on the lookout for new policies including possible trade tariffs.

Glencore gained 2.7%, while Rio Tinto's London-listed shares were up 2.2%. Glencore approached Rio Tinto late last year about combining the two big copper producers, but the discussions are no longer active, a source told Reuters.

Smiths Group added 5.5% after U.S. activist investor Engine Capital, which owns a roughly 2% stake in the engineering firm, called for the British company to sell the company or parts of it.

Betting and gaming firm Evoke climbed 5.5% after it forecast 2024 core profit ahead of market expectations, helped by growth in its online business and favourable sports results in the fourth quarter.

(Reporting by Shashwat Chauhan and Sruthi Shankar in Bengaluru; Editing by Mrigank Dhaniwala and Gareth Jones)