The UK stock market is likely to rise for the next 12 months, if the Bank of England cuts interest rates on Thursday and history repeats itself, according to CNBC Pro analysis. Economists say forecasting whether Britain’s central bank will cut or hold rates is a close call. The decision to lower interest rates – which currently stand at 5.25% – would mark the first time monetary policy has been eased in the UK since the hiking cycle began in December 2021. CNBC Pro analyzed stock market data for four tightening cycles since 1986. — most dates The analysis found that, on three occasions, the index rose by more than 20% on average in the year following a cut in interest rates. The review also showed that the FTSE 250 mid-cap index gained more than 25% on average in the year following the cut. The analysis found that the direction of travel of both indices for annual returns also adjusted between three and six months after the rate cut. For example, a domestically focused index of 250 stocks rose 17% in the three months after the Bank of England cut rates in 1998. The same benchmark also rose more than 35% in the 12 months following the cut. However, the FTSE 100 and FTSE 250 fell a year after falling from 2007 levels by 38% and 46% respectively, due to the global financial crisis. Three months after the cut, both indexes fell by an average of 8% on the two occasions. The bank has historically cut rates when the economy is in recession or experiencing a significant decline in growth. Uniquely, in the current situation, the Bank will cut when the economy continues to grow, because inflation seems to have fallen under control. Here are the forecasts of some investment banks: “Our economists expect a 25bp Bank Rate cut (5-4 vote split) in August, more reflecting a dovish attitude than the (mixed) data. It’s a close call,” said Bank of America. Rates Strategist Agne Stengeryte. “In the UK, we continue to see a 25bp cut by the BoE at the August meeting, but see it as a close call,” JPMorgan Economist Nora Szentivanyi said. “Although well balanced, we expect the MPC to vote 5-4 to cut the Bank Rate by 25bp at its August meeting, against the background of forecasts of undershooting inflation in the medium term,” said Jack Meaning, UK chief economist at Barclays.
Here’s what usually happens to UK stocks when the Bank of England cuts interest rates
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