The FTSE 100 held onto gains on Wednesday, driven primarily by a weaker pound after UK inflation unexpectedly fell to 2.8%, boosting London’s overseas earners.
UK stocks hold onto gains
The decline in inflation reinforced expectations that the Bank of England may consider rate cuts sooner than previously thought, further supporting equities. However, Chancellor Rachel Reeves’ Spring Statement provided little fresh optimism for investors. Many of the major announcements, such as welfare and NHS changes, were already well known and had minimal market impact. The biggest disappointment came from the Office for Budget Responsibility’s (OBR) revised UK growth forecast, which was cut from 2% to just 1% for 2024, highlighting persistent economic challenges.
This downgrade dampened sentiment, particularly in the housing sector, where shares of major homebuilders initially turned negative before staging a modest recovery. The government also admitted it would fall short of its 1.5 million homes target, revising expectations to 1.3 million. Investors were hoping for bolder action on planning reform and infrastructure investment to stimulate growth, but Reeves stopped short of announcing significant changes.
Defence stocks rebound
Meanwhile, defence stocks like BAE Systems rebounded after Reeves pledged to increase military spending in response to global geopolitical tensions, a move welcomed by the sector. Energy stocks also performed well, with Shell extending gains following its strategic update, in which the company reaffirmed its commitment to shareholder returns and efficiency improvements. In contrast, retail and consumer stocks saw mixed trading, as concerns over sluggish economic growth offset any benefits from easing inflation.
