The FTSE 100 remained flat on Thursday afternoon after the Bank of England’s Bank of England decision to cut its interest rate by 0.25 percentage points to 4.75%.
The pound reacted positively to the cut, rising against the dollar from $1.2877 the previous day to $1.2936. This decision came alongside the Bank’s latest economic projections, which highlighted the inflationary pressures expected from last week’s Autumn Budget.
The recent budget is expected to boost GDP by around 0.8% compared to August projections. However, the Bank warned that inflation could peak at 0.5% higher due to the fiscal measures introduced.
Kyle Chapman, FX market analyst at Ballinger Group described the central bank’s rate cut as a “hawkish” move, noting that “the budget has fundamentally altered the calculus for the Bank of England’s rate path.”
Mr Chapman added that the Budget’s added stimulus is likely to heighten inflationary pressures, supporting the pound but keeping the Bank on a slower trajectory for future rate cuts.
He noted that “the market is now only expecting two extra cuts by mid-2025”, adding that the Bank foresees limited long-term growth effects from the Budget.
He said: “While 2025 is expected to be significantly higher, the forecasts thereafter continue to expect a low potential growth rate.”
The FTSE 100, having been down 1.63 points at 8,165.05, reflected some market caution following the Bank’s announcement.
Miners led gains on the FTSE 100, while sectors impacted by higher inflation risks saw mixed responses.
European markets also showed strength, with the CAC 40 in Paris up by 0.5% and the DAX 40 in Frankfurt up by 1.3%.
In the US, a rate decision from the Federal Reserve is anticipated later in the day, with potential effects on UK markets depending on the Fed’s stance.