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The FTSE 100 index closed at an all-time high on Friday, as stocks on both sides of the Atlantic headed for their best week of the year, buoyed by signs that major central banks are on track to cut interest rates.
London's main stock index rose 0.6 percent to close at 7,930.92 points after Bank of England Governor Andrew Bailey told the Financial Times that markets were right to expect more than one cut in borrowing costs this year.
The FTSE 100 had already risen 1.9 per cent on Thursday after the Bank of England left interest rates unchanged and is approaching its February 2023 peak of 8,047.06.
The index's gains came amid a rally in global stocks that followed the Federal Reserve's meeting on Wednesday, in which the US central bank reiterated its forecast for interest rate cuts of a quarter of a percentage point this year.
Wall Street's S&P 500 index fell 0.1 percent on Friday, but remains up 2.3 percent since last Friday's close and is on track for its best week since December.
The European Stoxx 600 index was flat across the region on Friday, up 1 percent during the week.
The prospect of lower borrowing costs made the rally more “sustainable” than in recent months, when indexes rose on the back of a few big-name stocks such as US technology giants, said Florian Ilbo, of investment management firm Lombard Odier.
“We are seeing a better balance in the rise in stocks, which is good news for the markets,” he said.
Traders in swap markets are now fully pricing in quarter-point interest rate cuts from the Bank of England by the end of 2024.
The implied probability of a first cut by June has risen to about 80 percent, from 50 percent at the beginning of the week. Pricing is similar for the Federal Reserve, with cuts expected to begin in June or July.
The Swiss National Bank became the first major central bank to start easing monetary policy on Thursday when it unexpectedly cut its key interest rate by 0.25 percentage points to 1.5 percent.
Bailey said interest rate cuts were “on the table” at future Bank of England meetings this year, adding that the fight against inflation was an “increasingly positive story”.
The Governor of the Bank of England said that things are “moving in the right direction” in tackling inflation. At this week's Monetary Policy Committee meeting, two formerly hawkish policymakers abandoned their call for higher interest rates, instead voting with the majority to keep interest rates unchanged.
Japan's Nikkei 225 index rose 5.6 percent this week, despite the Bank of Japan raising borrowing costs for the first time since 2007. Traders were reassured by signs that the Bank of Japan's benchmark interest rate, which remains just above zero, will not… It rises sharply after Tuesday's decision. It rises.
