London stocks rise as shrinking economy fuels rate-cut hopes

Reuters

Published Feb 15, 2024 08:22

Updated Feb 15, 2024 17:20

By Shristi Achar A

(Reuters) -UK equities gained on Thursday, buoyed by a fall in government bond yields after data showed the British economy fell into a recession at the end of 2023, building the case for the Bank of England to ease its monetary policy.

The exporter-heavy FTSE 100 rose 0.4%, while the mid cap FTSE 250 index added 0.5%.

Britain's economy entered a recession in the second half of 2023 after it shrank by a worse-than-expected 0.3% in the three months to December. It also contracted by 0.1% between July and September.

However, shares were supported by a fall in the 10-year UK gilt yield, which last stood at 4.058%. [GB/]

"The data is evident of deflated activity across all key sectors of the economy, from manufacturing to service and retail," said Jeremy Batstone-Carr, European strategist at Raymond James Investment Services.

"The lagged impact of high inflation and interest rates will work its way through the economy, allowing the Bank of England to lower the base rate come summertime."

Money market traders added to their bets of an interest rate cut from the BoE, with most pricing in about 75 basis points (bps) of cuts this year, up sharply from 60 bps on Tuesday, when strong U.S. inflation data added to expectations that central banks would be slow to cut rates. [0#BOEWATCH]

Among single stocks, Close Brothers Group sank 22.5% as the lender said it would not pay dividends for the current financial year as there was "significant uncertainty" about a regulatory probe into the motor finance industry over commission arrangements.