UK markets were positive this week, with the FTSE 100 Index rising by 1.17% to trade at 8,685 points at the time of writing. UK markets followed European markets higher after the European Central Bank warned of “headwinds” to the Eurozone’s stagnating economy and cut its benchmark interest rate by 0.25% to 2.75%.
The unanimous decision on Thursday, which takes the European Central Bank’s deposit rate to its lowest level since early 2023, came hours after Eurostat reported that the Eurozone economy had not grown at all in the fourth quarter of 2024.
Bank of England governor Andrew Bailey has warned that government backed proposals to water down limits on riskier mortgage lending could trigger more home repossessions and fail to help first time buyers, even as he announced plans to review the policy this week. His comments indicated that the Bank of England is reluctant to further relax restrictions on British banks’ mortgage lending after having done so as recently as November.
The Financial Conduct Authority proposed going further earlier this month.UK chancellor Rachel Reeves backed the FCA’s proposal, saying that she was “absolutely open to looking at ideas that can boost home ownership and help working families get on the housing ladder”. Reeves and Prime Minister Sir Keir Starmer have urged all UK regulators, including the Bank of England and the FCA, to do more to support its goal of reviving the country’s stagnant economy by easing the burden of rules on business.
UK house price growth slowed more than expected in January as mortgage rates ticked up and affordability remained stretched, according to figures from Nationwide. The average house price rose to £268,213, up 0.1% from the previous month and 4.1% year on year, less than the annual rise of 4.7% recorded in December. Economists polled by Reuters had expected a monthly rise of 0.3% and an annual rise of 4.3%.
Commodity markets
Brent crude futures traded around $76 per barrel on Friday and are set for a weekly decline, as threatened US tariffs on Canadian and Mexican crude imports could take effect this weekend. Winter storms hit US demand levels last week, with crude oil stockpiles in the US rising by 3.5 million barrels as refiners cut production. Analysts had expected a 3.2 million barrel rise according to a Reuters poll.
On the supply side, the latest US sanctions on Moscow are squeezing crude oil exports from Russia’s western ports, which are set to fall 8% month over month in February, as Moscow boosts refining. Investors are looking ahead to a meeting by OPEC and its allies including Russia, which is scheduled for February 3rd.
The group is set to discuss Trump’s efforts to raise US oil production and take a joint stance on the matter, Kazakhstan said on Wednesday. Trump has called on OPEC and its leading member Saudi Arabia to lower oil prices, saying doing so would end the conflict in Ukraine. He has also set up an agenda of maximising US oil and gas production, which is already the world’s largest. However, analysts believe a price war between the US and OPEC+ is unlikely, as it may hurt both.
Gold prices traded around $2,795 an ounce on Friday, hitting record highs, as investors worried about potential import tariffs from US president Donald Trump. Despite the fact that tariffs on gold in the US are extremely unlikely given that it is a reserve asset, risk managers are taking no chances and moving metal into the states.
Equity markets
US equity futures were little changed on Friday after a volatile week, driven by concerns over the US’s artificial intelligence dominance amid rising competition from Chinese DeepSeek. In Thursday’s regular trading session, the Dow Jones Industrial Average gained 0.38%, the S&P 500 rose 0.53%, whilst the Nasdaq Composite increased by 0.25%. The Federal Reserve kept its main interest rate at a range of 4.25% and 4.5% on Wednesday, and indicated it was now on pause, with chair Jerome Powell saying that US rate-setters “do not need to be in a hurry to adjust our policy stance”. Donald Trump sharply criticised the move, after the central bank defied the president’s calls for deep reductions in borrowing costs by leaving interest rates on hold.
The Federal Reserve’s unanimous decision to hold interest rates came just days after Trump insisted borrowing costs should fall “a lot” and vowed to “let it be known” if he disagreed with the central bank’s decision. The Federal Open Market Committee, the central bank’s policy-setting panel, said in its decision that US inflation remained somewhat elevated and removed an earlier reference noting progress towards hitting its 2% goal.
The pause followed three consecutive cuts that took the federal funds target range down from a 23 year high of 5.25% to 5.5%. Jerome Powell signalled that interest rates would remain on hold until the committee had more time to assess how Trump’s pledges to raise trade barriers, slash taxes and red tape, and undertake mass deportations would affect its efforts to cool inflation.
The US economy grew at an annualised rate of 2.3% in the fourth quarter, figures from the Bureau of Economic Analysis showed, compared with the 2.6% expected by economists polled by Bloomberg and 3.1% in the third quarter. Consumer spending powered a large portion of the growth in the world’s largest economy in the fourth quarter, with government expenditures also boosting the figures. A decline in investment partly offset the rise. The US economy expanded 2.8% for the whole of 2024, on a par with the 2.9% recorded in 2023.
The International Monetary Fund expects the US economy to continue to outpace Europe, Canada and Japan this year, with president Donald Trump’s pledges to cut taxes raising expectations that US growth will remain robust. Although some economists are concerned that if Trump sparks a trade war with tariffs on trading partners, it could wipe out some of those expected gains.
The information provided in this communication is not advice or a personal recommendation, and you should not make any investment decisions on the basis of it. If you are unsure of whether an investment is right for you, please seek advice. If you choose to invest, your capital may be at risk and the value of an investment may fall as well as rise in value, so you could get back less than you originally invested.