The London and Frankfurt stock exchanges hit record highs Thursday as the Bank of England kept its interest rate at a 16-year high but raised hopes of a cut in the coming months.
The British capital’s benchmark FTSE 100 index, which has been breaking records repeatedly in recent days, topped 8,390 points around midday before paring down some gains.
The DAX in Frankfurt jumped above 18,600 points. The Paris CAC 40 also rose after falling earlier in the day.
The Bank of England kept its key rate at 5.25 percent for a sixth meeting in a row in efforts to tame inflation, mirroring a wait-and-see approach by the US Federal Reserve and European Central Bank.
Signalling that a rate cut was on the horizon, two members of the bank’s nine-strong Monetary Policy Committee (MPC) voted for interest rates to be cut by 0.25 percentage points.
UK annual inflation fell less than expected in March to 3.2 percent but BoE Governor Andrew Bailey voiced optimism that it would soon return to the central bank’s two-percent target.
“We’ve had encouraging news on inflation and we think it will fall close to our two-percent target in the next couple of months,” Bailey said.
“I’m optimistic that things are moving in the right direction.”
His comments raised hopes that the BoE could soon cut rates. Its next meeting is in June.
The BoE also voiced confidence that the UK economy had grown in the first quarter, which would signal the end of a short-lived recession.
“There is a cautious sense of optimism with analysts predicting we are edging closer to the first cut in interest rates since the pandemic, with the first cut potentially this summer,” said Richard Flax, chief investment officer at Moneyfarm.
Mahmoud Alkudsi, senior market analyst at ADSS, said the central bank may wait until the final three months of the year to make a cut.
“The BoE doesn’t want to make a premature decision that it ends up having to unwind later in the year, so it could even be (the fourth quarter) before they feel comfortable to start unwinding their fiscal tightening,” he said.
Sweden’s central bank on Wednesday reduced borrowing costs for the first time in eight years and cited more were in the pipeline.
The Riksbank decision was announced nearly two months after the Swiss National Bank became the first major Western central bank to move since a global tightening campaign to fight inflation fuelled by Covid recovery and the Ukraine war.
The ECB is expected to cut its rates in June.
But traders hoping for US Federal Reserve cuts have been on a rollercoaster ride this year as a string of forecast-beating inflation readings have forced them to chip away at their expectations.
The consensus is now about two cuts by January, against six estimated at the start of 2024.
Elsewhere, oil prices ticked higher as investors keep tabs on efforts for a ceasefire in the Middle East, even as Israel presses ahead with an assault on Rafah in southern Gaza.
– Key figures around 1145 GMT –
London – FTSE 100: UP 0.4 percent at 8,387.98 points
Frankfurt – DAX: UP 0.6 percent at 18,601.12
Paris – CAC 40: UP 0.2 percent at 8,145.02
EURO STOXX 50: DOWN 0.2 percent at 5,029.62
Tokyo – Nikkei 225: DOWN 0.3 percent at 38,073.98 (close)
Hong Kong – Hang Seng Index: UP 1.2 percent at 18,537.81 (close)
Shanghai – Composite: UP 0.8 percent at 3,154.32 (close)
New York – Dow: UP 0.4 percent at 39,056.39 (close)
Euro/dollar: DOWN at $1.0726 from $1.0748 on Wednesday
Dollar/yen: UP at 155.86 yen from 155.63 yen
Pound/dollar: DOWN at $1.2466 from $1.2495
Euro/pound: UP at 86.08 from 86.00 pence
West Texas Intermediate: UP 0.7 percent at $79.55 per barrel
Brent North Sea Crude: UP 0.7 percent at $84.13 per barrel
burs-lth/rl
