Ftse 100 gains momentum in anticipation of Bank of England base rate cut

The advance came as markets increasingly priced in a further reduction in borrowing costs when policymakers meet on Thursday.

Mid-cap stocks also moved higher, with the Ftse 250 rising 172.61 points, or 0.8 per cent, to finish at 22,049.16.

Smaller companies lagged behind the broader market, with the AIM All-Share index falling 2.13 points, down 0.3 per cent, to 749.23.

Financial stocks were the strongest contributors to the Ftse 100’s gains during the session.

Prudential shares rose 3.2 per cent, while insurer Hiscox added 3.0 per cent.

NatWest also gained 3.0 per cent, with Barclays ending the day 2.2 per cent higher.

Markets are currently assigning a strong probability to a quarter-point cut in interest rates later this week.

Investors expect the Bank of England to reduce rates to 3.75 per cent at Thursday’s meeting.

Swaps markets are indicating a 90 per cent likelihood of such a move.

Tom Stevenson, investment director at Fidelity International, said markets were firmly aligned around expectations for a cut.

He said: "The conventional wisdom is that rates will fall by a quarter percentage point on Thursday to 3.75 per cent, with swaps markets pricing in a 90 per cent chance of a cut.

"It would be the sixth rate cut since the Bank started cutting in the summer of 2024."

Despite those expectations, uncertainty remains over the final decision.

Mr Stevenson said: "But the decision remains a close call, and it is possible that Bank governor Andrew Bailey will be forced to use his casting vote this week".

He said the monetary policy committee appears divided as rates approach what economists describe as the neutral level.

Mr Stevenson said: "Interest rates are thought to be approaching the so-called 'neutral rate' at which they neither stimulate nor constrain the economy.

"That has caused a roughly even split on the Monetary Policy Committee (MPC) between members who think rates should fall further to boost growth, and those who think caution should be the watchword until it is clear that inflation is under control."

The neutral rate is widely seen as a point where borrowing costs no longer have a material impact on economic activity.

Outside the banking sector, several blue-chip stocks also posted notable gains.

Haleon rose 2.9 per cent after Morgan Stanley named the consumer healthcare group as its preferred pick within the Home and Personal Care sector.

The broker said it expects accelerating organic sales growth next year as the company moves beyond US destocking pressures.

Marks & Spencer advanced 2.0 per cent following a positive assessment from Jefferies.

The investment bank named the retailer as its top UK retail pick.

Jefferies said it remains cautious on the wider consumer outlook and downgraded Tesco, Next and Associated British Foods.

Defence contractor BAE Systems moved against the broader market, falling 0.4 per cent.

The decline came amid signs of potential diplomatic progress in Ukraine following developments over the weekend.

European equity markets also closed higher on Monday.

Paris’s Cac 40 gained 0.7 per cent, while Frankfurt’s Dax 40 added 0.2 per cent.

Sterling strengthened against the dollar during the session.

The pound traded at 1.3390 against the US currency at the London close, compared with 1.3356 at the end of last week.

US markets were subdued as trading in London came to an end.

The Dow Jones Industrial Average and Nasdaq Composite were both down 0.1 per cent.

The S&P 500 edged 0.1 per cent higher.

The week ahead features a busy calendar of economic data and central bank announcements.

In addition to the Bank of England decision, policymakers in Europe and Japan are also due to deliver interest rate verdicts.

Tuesday is set to bring UK employment and earnings figures, alongside US non-farm payrolls and retail sales data.