By Shristi Achar A, Pranav Kashyap and Johann M Cherian
(Reuters) -UK stocks closed higher on Thursday, with the FTSE 100 rising as much as 2%, boosted by rate-sensitive financials after the Bank of England kept borrowing costs unchanged and said that the economy is moving in the direction for interest rate cuts.
The FTSE 100 closed at its highest level since May 2023, boosted by a 4.5% gain in the investment banking sector, while a near 1.0% fall in the pound against the dollar also helped the exporter-heavy index.
The top index also outperformed the pan-European STOXX 600 that closed up by 0.9%.
Investor euphoria gained steam after the BoE held rates at 5.25% and said it expected inflation to drop below its 2% target in the second quarter.
Traders see 75 basis points of rate cuts this year, up from around 70 bps prior to the decision. [0#BOEWATCH]
Still, Matthew Landon, global market strategist at J.P. Morgan Private Bank said: "The Bank of England looks more likely to be in the 'late cutter' camp."
"Even with recent progress that we have seen on price pressures, the UK still looks to be a couple of steps behind the rest of the world on their inflation battle," he said.
The domestically oriented FTSE 250 also climbed 1.3% to hit its highest levels in over a year. It was weighed down only slightly by a 9.7% drop in Dowlais Group, its worst day on record, after the GKN (LON:GKN) Automotive owner forecast current-year revenue to be similar to 2023 levels.
With Thursday's gains, the main FTSE indexes are in gains year-to-date, but lagging developed market peers, given limited exposure to technology-related companies that have led much of the global frenzy around Artificial Intelligence.
Among others, Next surged 6.7% to a record high after the clothing retailer reported a better-than-expected rise in profit for 2023-24.
Tritax Big Box jumped 2.7% after the boards of the warehouse owner and UK Commercial Property said they had agreed on a 924 million pound ($1.2 billion) all-share takeover deal by Tritax of its smaller rival.