London stocks hit over 10-month high as BoE signals rate cuts

NEW DELHI: London equities built on early gains on Thursday after the Bank of England kept borrowing costs unchanged, while dovish remarks from Governor Andrew Bailey bringing rate cuts into view drove sentiment higher.

The internationally-focussed FTSE 100 climbed 1.5% by 1234 GMT, its highest in over ten months, with a near 0.4% fall in the pound also lending support. The domestically oriented FTSE 250 also climbed nearly 1%.

The BoE held rates at current level of 5.25% as was widely expected, a day after data showed inflation fell to its lowest in almost two-and-a-half years. Bailey said the British economy is "moving in the right direction" for the central bank to start cutting interest rates, with rate-setters voting 8-1 to keep borrowing costs at their 16-year high.

Money markets raised their rate cuts bets to 75 basis points this year, up from around 70 bps prior to the decision. "It's really more about kind of the comments and they are more on the dovish side and we've seen like couple of governors removing the hike expectations," said Marija Veitmane, head of equity research at State Street Global Markets.

Rate-sensitive real estate investment trusts and homebuilders gained 2.2% and 1.7% respectively. Precious metal miners also boosted the resource-heavy FTSE 100, rising 4.9%, as spot gold prices hit fresh record highs.

Meanwhile, British government bond yields extended declines, with the benchmark 10 year gilt last standing at 3.959%. The BoE's move follows the Fed which also kept borrowing costs unchanged on Wednesday and projected three interest rate cuts this year, alleviating investor concerns about high interest rates and prompting U.S. stocks to move higher.

Among stocks, Next surged 6.2% to a record high after the clothing retailer reported a slightly better-than-expected rise in profit for 2023-24.