European Markets End in Green Amid BOE's 25bps Rate Cut

European markets remain in a positive trend with the London index (UKX) down 0.69% to 9,101. The Bank of England has made its fifth interest rate cut in this cycle, slashing rates by 25 basis points. This move aims to boost the struggling UK economy.

The London index (UKX) closed down 0.69% at 9,101 on July 2, 2025, despite a mostly positive start for European markets. The FTSE 100 was influenced by several factors, including the impact of 12 blue-chip companies going ex-dividend and the significant drops in Hikma and WPP [1]. However, the FTSE 250 remained positive, with Harbour Energy PLC (LSE:HBR) and Serco Group PLC (LSE:SRP) leading the mid-cap risers [1].

The Bank of England (BoE) made its fifth interest rate cut in this cycle, reducing the base rate to 4.0% from 4.25%. This move was supported by a 4-4-1 split on the Monetary Policy Committee (MPC), with a 5-4 majority to reduce the rate by 0.25 percentage points. The BoE emphasized a gradual and careful approach to further monetary policy restraint, citing the need to remain responsive to the accumulation of evidence [1].

The BoE's decision comes amidst a backdrop of economic uncertainty, with GDP contracting in April and May, and PMIs consistent with stagnation. The jobs market has also shown signs of stress, with the number of employees on HMRC payrolls declining in each of the past five months. Inflation remains a concern, reaching 3.6% in June, which is both the highest level since January 2024 and almost double the MPC’s 2% target [1].

The mortgage market has seen notable changes, with the average two-year fixed mortgage rate dropping below the five-year rate for the first time since September 2022. This trend is expected to bring borrowers back to a more traditional mortgage market, where it is more expensive to secure a longer-term fixed mortgage [1].

The European markets started the day positively, with mainland indices such as Germany's DAX and France's CAC up 1.3% and 0.9%, respectively. However, the FTSE 100 was impacted by several factors, including the ex-dividend event and the drop in Hikma and WPP [1].

The FCA has announced that new rules to improve safeguarding practices among payment firms will be introduced in nine months, giving consumers additional protections. The changes will ensure that rules are proportionate for smaller firms, with no requirement for audits [1].

In summary, the European markets remain in a positive trend, with the FTSE 100 dipping due to ex-dividend events and specific stock movements. The Bank of England's rate cut aims to support the struggling UK economy, but the outlook remains uncertain given the economic challenges and inflation pressures.

References:
[1] https://www.proactiveinvestors.co.uk/companies/news/1076183/ftse-100-live-london-index-hit-by-ex-div-flurry-wpp-and-hikma-drop-1076183.html