The FTSE 100 rose 0.6% to 8,623.29 on Wednesday, outpacing mixed European peers, as investors braced for a pivotal Bank of England rate decision amid conflicting signals from a stalling economy and persistent inflation risks. The mid-cap FTSE 250 added 0.5%, while the AIM All-Share mirrored gains. Sterling ended at $1.2500 ahead of Thursday’s verdict.

BoE’s High-Wire Act
Markets priced in a near-certain 25 basis point rate cut to 4.50% on Thursday – the first reduction since 2020 – despite forecasts suggesting inflation could remain stubbornly above the BoE’s 2% target. Governor Andrew Bailey faces a perilous balancing act: easing monetary policy to revive growth without reigniting price pressures. Analysts warn a dovish tilt could see sterling pare recent gains, while hesitation risks deepening the UK’s economic malaise.

GSK Leads Charge, Diageo Sinks
Pharma titan GSK jumped 7.6% after hiking long-term sales targets and announcing a £2bn share buyback. The move offset a 4.0% plunge for Diageo, which remained under pressure after Bank of America and Goldman Sachs slashed price targets. The spirits giant faces headwinds from threatened US tariffs on Mexican and Canadian imports, potentially denting its lucrative North American whisky and tequila sales.

Europe Diverges, US Trade Deficit Swells
Frankfurt’s DAX 40 edged up 0.2% despite weaker eurozone data, while Paris’ CAC 40 slipped 0.3%. Stateside, the Dow Jones inched up 0.2% at London’s close, though tech stocks dragged the Nasdaq down 0.2%. A shock 25% surge in the US trade deficit to $98.4bn in December underscored shifting global demand patterns.

Services Sector Cools, Commodities Churn
The S&P Global US services PMI dipped to 52.9 in January (Dec: 56.8), signalling moderating growth despite firms’ bullish hiring plans. Brent crude slid 2.0% to 74.64 as demand concerns lingered, while gold climbed $2,870.03, reflecting haven demand ahead of Thursday’s BoE decision.

Thursday’s Agenda: BoE in Focus
All eyes turn to Threadneedle Street’s noon rate call and Bailey’s press conference, alongside AstraZeneca’s full-year results and US jobless claims data.

Key Watchlist (Thursday):

  • Economic: BoE rate decision (12:00 GMT), UK construction PMI, US initial jobless claims
  • Corporate: AstraZeneca (FY results)

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