UK Stocks Expected to Rise as Pound Nears $1.35, Bond Yields Soar to 1998 High

The FTSE 100 is expected to edge higher today, while the pound is close to $1.35. Yesterday, UK bonds saw a selloff, with yields rising and investors paring their bets on BOE rate cuts. This had an impact on gilt markets, with yields on 30-year inflation-linked bonds reaching their highest level since 1998.

The FTSE 100 is expected to edge higher today, while the pound is close to $1.35. Yesterday, UK bonds saw a selloff, with yields rising and investors paring their bets on BOE rate cuts. This had an impact on gilt markets, with yields on 30-year inflation-linked bonds reaching their highest level since 1998 [1].

The FTSE 100 index closed up 0.1% at 9,177.24, despite better-than-expected UK growth figures and a surprise pick-up in US producer price inflation. The UK economy expanded by 0.3% in Q2, slower than Q1, but Goldman Sachs raised its GDP growth forecast for 2025 to 1.4% [2]. The US producer price inflation rate rose to 3.3%, the fastest 12-month gain since February, and topping the consensus of a 2.5% increase [3].

The mixed performance in the UK stock market was driven by various factors. The FTSE 100 index was supported by gains in several sectors, including AstraZeneca and Fresnillo, which rose by nearly 2% and 1.6% respectively [1]. However, Beazley, the insurer, plunged 11.7% after cutting its full-year premium growth forecast to low-to-mid single digits [1]. The company reported a decline in profit before tax for the first half of 2025, down from $728.9 million in the prior year to $502.5 million [1].

The UK's economic growth in Q2 was driven by increases in services and construction, while the production sector fell by 0.3% [2]. The services sector grew by 0.4%, with the largest positive contributors being information and communication, and human health and social work activities [2]. However, the wholesale and retail trade sector declined by 0.9%, mainly due to a fall in wholesale trade, excluding motor vehicles and motorcycles [2].

The US producer price inflation rate rose to 3.3%, the fastest 12-month gain since February, and topping the consensus of a 2.5% increase [3]. This unexpected increase in inflation could impact economic policy decisions and market sentiment.

References:
[1] https://www.nasdaq.com/articles/ftse-100-modestly-higher-beazley-plunges-sharply
[2] https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/apriltojune2025
[3] https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpfirstquarterlyestimateuk/apriltojune2025