London, February 6, 2026, 13:37 GMT — Regular session
- UK blue chips ticked up as banks drew buying interest, though data and software stocks lagged behind.
- After the Bank of England’s close call, rate expectations have taken the lead again.
- Politics and the upcoming U.S. data releases are casting a shadow over market sentiment.
London’s FTSE 100 edged up on Friday as gains in major banks outweighed another drop from data analytics firm RELX, which continues to feel pressure amid the global AI selloff. The blue-chip index was 0.2% higher at 1133 GMT, eyeing a second consecutive weekly gain. The FTSE 250, meanwhile, barely moved and looks set to slip for a second week. Barclays, NatWest, and Lloyds climbed between 1% and 1.6%. RELX fell 3.5%. Fresnillo gained 1.8%, while Next added 0.5% after acquiring footwear brand Russell & Bromley via an insolvency deal. Reuters
The early UK stock market outlook for 2026 shows a tug-of-war: cheaper borrowing costs clashing with pockets of concern over earnings. A drop in rates could ease pressure on the domestic economy, yet it would also tighten the margin lenders make between their borrowing and lending rates.
A Bank of England survey released Friday showed market players expect the Bank Rate to fall to 3.0% by the March 2027 meeting, down from the current 3.75%. Markets are pricing in nearly two more quarter-point cuts in 2026. The survey also put the median forecast for 10-year gilt yields—UK government borrowing costs—at 4.25% by the end of 2026. Expectations for quantitative tightening, where the BoE reduces its bond holdings, remained steady at a median £50 billion over the year starting October. For context, a quarter-point move equals 25 basis points, or 0.25 percentage points. Reuters
The BoE kept rates steady at 3.75% on Thursday following a narrow 5-4 split vote. It signaled that borrowing costs could come down if the expected dip in inflation holds steady. Governor Andrew Bailey commented, “All going well, there should be scope for some further reduction in Bank Rate this year,” even as the bank lowered its 2026 growth forecast to 0.9% and raised its peak unemployment estimate to 5.3%. Stefan Koopman, senior macro strategist at Rabobank, summed up the timing bluntly: “If not March, then April remains the most plausible window for the next cut.” Reuters
Sterling dropped sharply after the decision, last seen down 0.6% at $1.357. Bond yields also declined as traders piled on bets for easing. Elias Haddad, senior markets strategist at Brown Brothers Harriman, noted that policymakers had “scrapp[ed] reference to a gradual downward path of the bank rate,” suggesting shifting short-term expectations could weigh further on the pound. Madison Faller, global investment strategist at J.P. Morgan Private Bank, described March as “a live option” for a rate cut and pointed to political risks adding pressure. Reuters
Concerns are mounting in sectors tied closely to the “AI trade” and corporate spending cycles. Neil Wilson, Saxo’s UK investor strategist, flagged “fresh AI bubble fears” as major cloud providers ramp up their capital expenditure. Hargreaves Lansdown equity analyst Aarin Chiekrie noted that despite strong cloud growth, the market remains wary of “ballooning capital investment plans.” In London, shares of RELX, Sage, and Experian slipped again, while LSEG faced its second consecutive week of sharp losses, down 7% this week. Across the Atlantic, Alphabet and Amazon added to pressure on the broader tech sector. Reuters
Thursday’s close highlighted just how quickly the “cuts are coming” story can weigh on certain sectors. The FTSE 100 slipped 0.9%, while the FTSE 250 dropped 1%. Banks took a hit: HSBC, Lloyds, and NatWest fell between 2.3% and 6% as traders priced in a higher chance of near-term easing. Shell’s shares tumbled 3.4% after a fourth-quarter profit miss, and both Rio Tinto and Glencore slid following the collapse of their merger talks. Matthew Ryan, head of market strategy at Ebury, called the March meeting a “live” one but still leans toward an April rate cut. Reuters
Housing plays a key role in the 2026 outlook, influencing both consumer confidence and demand for bank credit. Halifax reported a 0.7% rise in house prices in January, rebounding from a 0.5% drop in December. Prices are now up 1.0% year-on-year, pushing the average property value above £300,000 for the first time. The firm maintains its forecast of 1%-3% growth in house prices for 2026. Amanda Bryden, Halifax’s head of mortgages, noted that affordability “remains a challenge for many would-be buyers.” Meanwhile, Ashley Webb from Capital Economics cautioned that political instability could push gilt yields higher, meaning mortgage rates might fall less than markets currently expect. Reuters
Politics is creeping into the macro narrative. Reuters noted that Labour MPs are doubting Prime Minister Keir Starmer’s judgment over the Mandelson affair, with some eyeing the May local elections as a critical stress test. Eurasia Group even puts Starmer’s chances of being ousted this year at 80%. Starmer slammed Mandelson for weaving a “litany of deceit” around his Epstein connections. Reuters
The rate-cut trade isn’t guaranteed to follow a smooth path from here. BoE chief economist Huw Pill cautioned that the bank might get too comfortable with the forecasted dip in inflation for April, which is tied to regulated energy prices and fiscal policies, and risk “losing a little bit of a track” on where core inflation is headed. If that caution prevails, rate cuts could come slower or later than expected, and the boost to equities from falling yields might be weaker than traders currently anticipate. Reuters
The next batch of catalysts arrives fast. The January employment report is now set for Wednesday, Feb. 11, following a delay from the recent U.S. government shutdown, according to the Bureau of Labor Statistics. Then, the January CPI will drop Friday, Feb. 13. These data points will directly influence global rate pricing that rolls into London. Over in the UK, the Bank of England’s next decision is on March 19, with traders eager to see if February’s narrow split leads to an actual rate cut. Reuters
