Footsie hits a record as Investors eye lower interest rates in UK

The FTSE 100 closed at an all-time high yesterday as easing tensions in the Middle East and hopes of interest rate cuts in the UK sent shares soaring.

On a bumper day for savers with money tied up in the stock market through pensions, Isas and other investments, the blue-chip index closed up 1.6 per cent, or 128.02 points, at 8023.87.

That eclipsed the previous record close of 8014 in February last year.

The FTSE 250 made healthy gains – up 1.1 per cent, or 208.09 points, to 19,599.39 – amid yet more takeover activity, though it remains some way off its peak of 24,353 in September 2021.

The rally came as the absence of further violence between Iran and Israel over the weekend fuelled hopes that all-out war in the Middle East can be avoided.

New high: On a bumper day for savers with money tied up in stocks through pensions, Isas and other investments, the blue chip index closed up 1.6% or 128.02 points at 8023.87

Economic factors close to home also played their part as investors bet the Bank of England will press ahead with interest rate cuts in the coming months.

According to bets on financial markets, there is a 50-50 chance the first UK cut will come in June and a 75 per cent chance it will be August, taking rates from a 16-year high of 5.25 per cent to 5 per cent.

Rates are then expected to fall to 4.75 per cent or possibly 4.5 per cent by the end of the year.

The prospect of lower interest rates gave share prices a lift as investors looked to the stock market for better returns.

At the same time, with the Bank of England expected to cut rates before the US Federal Reserve, the pound fell to $1.23 against the dollar for the first time since November.

A weak pound tends to boost the Footsie because many of the large multinationals on the index earn their revenues in a foreign currency. 

The lower the value of sterling, the more these revenues are worth when they are translated into pounds.

Susannah Streeter, head of money and markets at broker Hargreaves Lansdown, said: ‘London’s blue-chip index has had a surge of power as heightened geopolitical tensions have eased, and investors assessed the brighter prospects for the UK economy, with interest rate cuts spied on the horizon.’

The Footsie is just below the intra-day high of 8047 – also reached in February 2023.

The stock market rally came at the start of a week packed with corporate earnings on both sides of the Atlantic. In the UK, companies updating investors include Lloyds, Barclays and Natwest as well as Astrazeneca, Unilever, Reckitt Benckiser, Sainsbury’s and London Stock Exchange Group.

In the US, four of the so-called Magnificent Seven publish results this week, starting with Tesla tonight followed by Facebook owner Meta tomorrow and Google parent Alphabet and Microsoft on Thursday.