UK shares rose on Thursday, tracking gains in global equities after the Federal Reserve initiated a 50-basis-point rate cut, while investors looked ahead to a Bank of England (BoE) policy decision later in the day.
London market gains were broad-based, with the blue-chip FTSE 100 up 0.9%, mid-caps gaining 0.8% and small- caps rising 0.3% by 0710 GMT.
The Fed eased interest rates by a larger-than-usual 50 basis points on Wednesday, with Chair Jerome Powell citing easing inflation and a need to support the labour market.
The move boosted confidence for an economic “soft landing” in the world’s largest economy and lifted risk sentiment, with global equities rising and sterling gaining against the dollar.
Across the Atlantic, UK interest rates are expected to come down more slowly than the US, with the BoE widely expected to keep benchmark rates on hold at 5%.
Despite kicking off its easing cycle in August, UK policymakers continue to grapple with rising inflation, as evidenced by Wednesday’s report that showed a quickening pace in inflation in the services sector.
London stocks pull back after inflation data, all focus on Fed
The pace of the BoE’s bond sales, ahead of the Labour-led government’s first budget, will also be closely watched.
“The BoE probably wants to see the new UK government’s first budget in October and that the high services inflation (over 5% in August) shows signs of slowing down, before a decision is made on further cuts,” said Jens Magnusson, chief economist at SEB.
All major FTSE sector indexes opened higher, led by a 2.6% rise in the retail sector.
Lifting retailers, Next jumped 6% to the top of the FTSE 100 after announcing it was on track to make an annual profit of almost 1 billion pounds ($1.32 billion).
Ocado Group shares soared nearly 15% after Ocado Retail lifted revenue forecast for 2023-2024, as sales jumped in its latest quarter.
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