FTSE 100 Soars to Historic Peak as Rate Cut Hopes Fuel Market Rally

London’s blue-chip FTSE 100 index reached unprecedented heights today, hitting a new all-time high of 8,496.42 as investors bet on aggressive interest rate cuts from the Bank of England in 2025. The milestone marks a significant moment for UK’s premier stock index, which has rallied 2.7% in the past week alone.

The surge in stock values comes amid mounting evidence that the UK economy is struggling to maintain momentum, paradoxically boosting investor sentiment as it strengthens the case for earlier monetary policy easing. Recent economic data showed UK GDP growing at a modest 1.1% while retail sales unexpectedly declined by 0.3% in December. Services inflation, a key indicator of price pressures, dropped to 4.4%, its lowest level since March 2022.

The market’s response has been dramatic, with investors now pricing in a 91% probability of a rate cut from the Bank of England next month, up from 73% at the start of the week. Financial markets are increasingly aligning with the Bank of England’s projection of four rate cuts throughout 2025, with nearly three cuts currently priced into futures markets.

A weakening pound has provided additional fuel for the FTSE’s ascent. Sterling has fallen to $1.2209, down significantly from $1.342 in September. This currency weakness has particularly benefited the index’s multinational constituents, as three-quarters of FTSE 100 companies generate their earnings overseas.

Leading the charge in the index’s performance are heavyweight companies including HSBC, Shell, Rolls-Royce, Barclays, and Unilever, which have contributed approximately two-thirds of the FTSE 100’s growth over the past year. The energy sector has shown particular strength, with oil companies benefiting from a 9% rise in crude oil prices since the start of 2025.

Adding to the market excitement is speculation about potential merger and acquisition activity in the mining sector. Reports suggest Rio Tinto and Glencore explored merger possibilities at the end of 2024, though talks are not currently active. While analysts express skepticism about the feasibility of such a deal, the news has nevertheless sparked interest in the materials sector.

The more domestically-focused FTSE 250 has also enjoyed a strong performance, rising 4.4% over the past week, though it remains 14% below its all-time high from September 2021. This broader market rally has been supported by positive data from China, where GDP growth of 5.4% in the fourth quarter of 2024 exceeded expectations.

Financial sector stocks received an additional boost as the Bank of England announced a one-year delay in implementing new capital rules while awaiting clarity on how the incoming Trump administration will handle the global Basel agreement in the US.

Market strategists remain optimistic about the UK market’s prospects. Panmure Liberum strategist Joachim Klement noted that “the return upside in UK markets remains massively underappreciated,” predicting double-digit earnings growth in 2025, particularly in financial services and energy companies.

The FTSE 100’s achievement is particularly noteworthy given the challenging economic backdrop. While other UK assets, including government bonds and domestic stocks, have faced turbulence due to concerns about the fiscal deficit, the FTSE 100’s international exposure has helped it weather these headwinds.