The FTSE 100 reached a record high as traders increased bets on further interest rate cuts following an unexpected drop in retail sales in the run-up to Christmas.
Britain’s leading stock index climbed by 1% to 8,474.32, while the domestically focused FTSE 250 rose by 0.4% to 20,607.12.
This surge comes as traders solidify their expectations that the Bank of England will lower rates next month to help stimulate the economy after December’s retail sales fell by 0.3%.
Money markets now reflect a 92% probability of a rate cut in February, with a second cut anticipated by August. Derivatives trading suggests about a 60% chance of a third cut by year’s end.
Alex Kerr of Capital Economics noted that the retail sales data provides “further evidence that the economy had very little momentum at the end of last year.”
Thomas Pugh, an economist at RSM UK, commented, “An interest rate cut in February should help boost consumer confidence and incomes. But there is an escalating risk that cautious consumers will opt to save rather than spend any increases in income, which could mean weaker growth persists through the first half of this year.”
