Mark Carney today came riding to the rescue of lacklustre markets after dropping a strong hint that the next move by the Bank of England will be to cut interest rates, possibly to 0%, in order to protect the UK economy from the Brexit shock.
While politicians continue to wrangle, or just outright backstab, Carney continued to give investors some hope after announcing additional stimulus would likely be required “over the summer”. Investors interpreted this as a sign that rates could fall to a new record low below the current level of 0.5%, and the effect on markets was material, with the FTSE 100 closing up 2.3% at 6,504 points.
A range of companies led the way. Chief among them was 3i Group, the private equity giant, up 8.5%, while energy firm SSE also saw shares rise sharply, the group closing up 5.6%.
It wasn’t all positive for UK companies however, with the rally seen in the domestic banking sector coming under pressure from profit-taking. Royal Bank of Scotland and Lloyds closed down 4.8% and 2.6% respectively.
US and European shares also firmed once more, with the US S&P 500 up 1% shortly after London closed, and the German DAX ending the day 0.7% higher.
However, the likely announcement of more stimulus had a negative impact on both sterling and UK debt, with the pound off another 1% versus the US dollar, at $1.325, and 10-year gilt yields edging down to 0.96%.