UK markets advanced further this week, with the FTSE 100 Index rising by 0.55% to trade at 8,715 points at the time of writing. The Bank of England halved its 2025 growth estimate this week and cut interest rates by 0.25% to 4.5%, as it contends with a stagnant UK economy and an increasingly uncertain international environment.
The UK central bank said it now expects the economy to grow 0.75% this year, half its November forecast of 1.5%, and for inflation to rise before falling back. Thursday’s forecasts, which will stoke fears of stagflation, came as all nine members of the Monetary Policy Committee voted to cut benchmark rates from their previous 4.75%. A majority of seven members favoured the 0.25% move, while two backed a 0.5% reduction. Expectations of faster interest rate cuts helped the FTSE 100 reach a record high.
The Bank of England estimated that GDP fell by 0.1% in the final quarter of 2024, although it forecast a pick-up in growth to 1.5% for both 2026 and 2027. It added that Chancellor Rachel Reeves’ decision to increase employers’ national insurance contributions would hit both jobs and prices more than expected, with the unemployment rate rising to 4.8% over the next year, 0.5% higher than its previous forecast.
Markets are now expecting two further rate cuts this year, with a roughly 40% chance of a third. In its latest forecast, the UK central bank estimated that inflation would rise to 3.7% in the third quarter of this year, primarily because of higher energy prices, before slipping back to around 2.5% during 2026 and hitting the 2% target in 2027.
Elsewhere, UK house prices rose 0.7% in January, hitting a new record, taking the average property price to £299,138, according to data from mortgage lender, Halifax.
Commodity markets
In the commodity markets, Brent crude futures traded around $75 per barrel on Friday and are set for a weekly decline, as Donald Trump renewed his trade war with China and threatened tariff hikes on other countries, fuelling fears of weakening oil demand. Over the weekend, Trump announced a 10% tariff on Chinese imports as part of a broad plan to improve the US trade balance but suspended plans to impose steep tariffs on Mexico and Canada.
Oil prices were also driven lower after Trump repeated a pledge to raise US oil production, unnerving investors after the country reported a much bigger than expected jump in crude stockpiles. The US ramped up sanctions on Iran earlier in the week, including a commitment to drive the country’s oil imports down to zero, from above 1.5 million barrels per day currently, lending some support to the oil price.
Gold prices traded around $2,870 an ounce on Friday and are set for their sixth successive weekly gain, as trade war concerns fuelled safe-haven buying. Goldman Sachs said they see upside risk to their $3,000 target from a potentially persistent boost from elevated US policy uncertainty to central bank and investor hedging demand.
Equity markets
US equity futures were relatively unchanged on Friday as investors prepared for the release of the monthly payrolls report, which could influence the outlook for Federal Reserve monetary policy. In Thursday’s regular trading session, the Dow Jones Industrial Average fell 0.28%, the S&P 500 gained 0.36%, whilst the Nasdaq Composite rose by 0.51%.
China retaliated against Donald Trump’s additional 10% tariffs on imports from China with duties of its own but limited their scope in a possible attempt to avoid a full blown trade war. The measures against US products, ranging from liquified natural gas to cars, will take effect on February 10th. Beijing also said it would launch an antitrust probe into Google, whose search engine is blocked in China. China’s new tariffs target about $14 billion of goods, less than 10% of total imports from the US in 2023.
Trump has held off on his campaign pledge of imposing 60% tariffs on Chinese exports to the US. People familiar with the situation said he wants to do a deal with Beijing, so opted initially to hit China with a lower tariff rate. The trading relationship between the US and China has shaped both countries’ economies in recent decades. However, China’s share of the US’s total imports has fallen markedly since Trump introduced tariffs in his first term in office.
The number of Americans filing new applications for unemployment benefits increased moderately last week, consistent with steadily easing labour market conditions, though opportunities for those out of work are becoming scarce amid tepid hiring. Initial claims for state unemployment benefits rose by 11,000 to a seasonally adjusted 219,000 for the week ended February 1st, the Labor Department said on Thursday. Economists polled by Reuters had forecast 213,000 claims for the latest week.
Labour market resilience is the driving force behind the economic expansion in the US and has given the Federal Reserve room to pause interest rate cuts while policymakers assess the impact of the fiscal, trade and immigration policies of Donald Trump’s administration, which economists view as inflationary.
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