UK stocks rise as weaker data tempers Bank of England hike bets

The UK’s benchmark FTSE 100 index was on track to end a four-week losing streak on Friday after a series of economic data releases weakened expectations of an immediate interest rate hike from the Bank of England.

The blue-chip index rose 0.21% by 11:18 am GMT, while the midcap FTSE 250 gained 0.57%.

Investors appeared relieved after softer inflation figures and weaker retail sales data reduced pressure on the central bank to tighten monetary policy further.

Softer data eases rate hike concerns

Official figures released on Friday showed British retail sales fell by the most in nearly a year in April.

The decline added to signs of weakening consumer spending amid concerns surrounding the Middle East war and rising energy costs.

Earlier in the week, separate data showed that inflation in April came in softer than expected.

At the same time, the unemployment rate edged higher, further supporting the view that the BoE may not need to act aggressively in the near term.

Analysts at BofA Securities said the recent economic data could reduce the urgency for the central bank to raise rates immediately.

“Dovish data should reduce the urgency for the BoE to act. So far, the MPC is taking comfort from tightening in financial conditions, which they say can give them time to assess whether to hike or not,” BofA Securities analysts said, as mentioned in a Reuters report.

Following the latest economic releases, the brokerage revised its outlook for the next BoE rate increase.

It now expects borrowing costs to rise in July instead of June.

Political uncertainty remains a concern

Despite the improvement in market sentiment, political uncertainty in the UK continued to weigh on investor confidence.

BofA Securities analysts warned that ongoing political developments could create additional policy uncertainty and tighter financial conditions in the near term.

Prime Minister Keir Starmer has faced pressure from lawmakers within his own party to step down.

However, he has resisted calls to quit despite mounting concerns over the cost-of-living crisis.

Investors have remained cautious as voters continue to express dissatisfaction over rising household expenses and economic pressures.

Chemical and auto stocks lead gains

Sector-wise, chemical shares posted strong gains on Friday, rising 2.87%.

Auto stocks also performed well, climbing 2.45%.

The broader recovery helped lift the FTSE 100 index by 2.65% for the week so far, putting the benchmark on course for its first weekly advance in five weeks.

The rebound in equities reflected growing hopes that easing inflation pressures and slowing economic activity could give policymakers more flexibility on interest rates, even as political and geopolitical uncertainties continue to linger.