The FTSE 100 and sterling rallied while the bond market calmed on Thursday as Prime Minister Sir Keir Starmer supported his Chancellor, reassuring markets that a change at the Treasury was not on the cards.
The FTSE 100 index closed up 48.51 points, 0.6%, at 8,823.20. The FTSE 250 jumped 250.09 points, 1.2%, at 21,702.58, and the AIM All-Share rose 8.49 points, 1.1%, at 776.25.
The yield on the 10-year UK government bond, which had sat as high as 4.68% on Wednesday, eased to 4.55% on Thursday.
Sir Keir told the BBC that Rachel Reeves would be Chancellor for a “very long time to come” and insisted the Government would stick to her fiscal rules.
The Prime Minister made the pledges after he seemed to fail to back a tearful Ms Reeves in the House of Commons on Wednesday.
The Chancellor rejected suggestions that her tears were related to a conversation with Commons Speaker Sir Lindsay Hoyle or another member of the Government.
“People saw I was upset, but that was yesterday. Today’s a new day and I’m just cracking on with the job,” Ms Reeves added at the launch of the Government’s 10-year plan for the National Health Service.
Kathleen Brooks, at XTB Research, said: “Rachel Reeves can wipe her tears, as she has the backing of the bond market. Far from weakening her position, the surge in bond yields is a warning to the PM and the Labour Party as a whole. The market does not want to see a more left-leaning chancellor in place, and Reeves is about as ‘market-friendly’ a chancellor as the Labour Party can hope for.”
Thursday saw encouraging news for the Chancellor as the UK service sector grew at its fastest rate for 10 months in June, supported by increased new orders.
The S&P Global UK services purchasing managers’ business activity index rose to 52.8 points in June from 50.9 in May, topping the flash reading of 51.3 released late last month.
“The latest upturn was the strongest since August 2024,” S&P Global added.
“Huge upward revisions to the services and composite PMIs show that UK growth continues to improve as global policy uncertainty fades, with (US President Donald) Trump avoiding his more ruinous tariffs and oil prices falling after war with Iran was put on hold,” said Rob Wood, at Pantheon Macroeconomics.
This “leaves us with hope that growth will rebound in May”, Mr Wood added.
The pound was quoted up at 1.3654 dollars late on Thursday afternoon in London, compared with 1.3612 dollars at the equities close on Wednesday. The euro stood lower at 1.1762 dollars, against 1.1781 dollars. Against the yen, the dollar was trading higher at 144.87 yen compared with 143.85 yen.
In New York, markets climbed after a strong jobs report, with the S&P 500 and Nasdaq Composite hitting all-time highs.
The Dow Jones Industrial Average was up 0.7%, the S&P 500 added 0.8% while the Nasdaq Composite advanced 1.0%.
The yield on the US 10-year Treasury was quoted at 4.33%, widening from 4.29% a day prior. The yield on the US 30-year Treasury stretched to 4.85%, widening from 4.83%.
According to Bureau of Labour Statistics data, total nonfarm payroll employment increased by 147,000 in June from an upwardly revised 144,000 in May.
June’s figure beat FXStreet-cited consensus for growth of 110,000.
May’s figure was revised up by 5,000 from 139,000, while April’s total was revised up by 11,000, to 158,000 from 147,000.
The unemployment rate edged lower to 4.1% in June from 4.2%, confounding FXStreet’s consensus, which forecast a rise to 4.3%.
In addition, average hourly earnings growth fell short of loftier expectations. Pay growth was 3.7% on-year in June, easing from 3.8% in May. Growth of 3.9% had been expected for June.
Economists now think the Federal Reserve will lower interest rates in September or later, with a cut in July viewed as unlikely.
“Payrolls continue to slow gradually, but the softening is insufficient to move the Fed as a low unemployment rate continues to indicate no new slack in the labour market,” said Morgan Stanley.
“We do not think these data point to a cut in July, and we continue to think the combination of rising inflation from tariffs and a low unemployment rate will keep the Fed on the sidelines,” it added.
Wells Fargo said the details in the report were “less encouraging and generally consistent with a cooling labour market”.
The broker pointed out the breadth of hiring was “narrow and the decline in the unemployment rate was partially driven by workers leaving the labour force”.
“Today’s data make a rate cut at the July FOMC meeting quite unlikely, in our view. But, we think the ongoing cooling in the labour market should keep the Fed on track to start cutting rates at its September meeting,” it added.
JPMorgan retained its call that the next rate cut will be in December.
In European equities on Thursday, the CAC 40 in Paris closed up 0.1%, while the DAX 40 in Frankfurt firmed 0.4%.
On the FTSE 100, the calmer bond market supported rate-sensitive housebuilders, with Berkeley up 2.6% and Persimmon up 1.2%.
But Rio Tinto fell 1.9% as Berenberg downgraded to “hold” from “buy” after taking a lower view on iron ore prices.
On the FTSE 250, Currys rose 6.6% as it resumed dividend payments and reported increased earnings for the 2025 financial year.
The London-based electronics retailer reported pre-tax profit of £124 million for the financial year that ended May 3, multiplied from £28 million the year before.
Revenue grew 2.7% to £8.71 billion from £8.48 billion the prior year. UK & Ireland revenue rose 6%, while revenue in the Nordics declined 2%. Nordic revenue was flat at constant currency rates.
“Every part of the business is heading in the right direction, the balance sheet has not been this strong in a decade, dividends are back and the prospects for buybacks this year are very real. Positive trading catalysts are building and there is a change in emphasis… towards growth,” broker Panmure Liberum said.
Elsewhere, Watches of Switzerland said that sales have improved, though a warning on margins sent its stock 7.6% lower.
For financial 2026, the company expects constant currency revenue growth of 6% to 10%.
It predicts an adjusted earnings before interest and tax margin percentage of flat to down 100 basis points versus 11.6% in the financial year to April 30 2024.
“As we enter financial 2026, we are mindful of the uncertain macroeconomic backdrop, geopolitical developments, potential US tariff changes, and their potential impact on consumer confidence,” the company said.
“The business has done an admirable job in driving margin recovery alongside revenue growth in (financial 2025), but in our view further margin recovery is needed before the market offers a more generous rating on the stock,” Shore Capital analyst David Hughes said.
Elsewhere, Crystal Amber Fund saw its shares rise 10% as it said portfolio company Morphic Medical obtained European approval for its obesity and diabetes treatment.
The investor of small and mid-cap UK equities said Morphic Medical, in which it holds a 98% stake, has obtained CE certification for its Reset therapy.
Brent oil was quoted higher at 68.67 dollars a barrel at the London equities close on Thursday, up from 67.57 dollars at the same time on Wednesday. Gold was quoted down at 3,330.30 dollars an ounce against 3,341.71 dollars.
The biggest risers on the FTSE 100 were Coca-Cola HBC, up 150p at 3,964p, NatWest, up 15.2p at 489p, Lloyds Banking Group, up 2.34p at 75.8p, ConvaTec, up 8p at 265.4p, and Pershing Square Holdings, up 122p at 4,120p.
The biggest fallers on the FTSE 100 were Rio Tinto, down 85p at 4,296p, AstraZeneca, down 186p at 10,204p, Melrose Industries, down 6.2p at 524.8p, GSK, down 15.5p at 1,394p, and Anglo American, down 19.5p at 2,244p.
Friday’s economic calendar has eurozone PPI figures, UK new car sales figures and a UK construction PMI reading.
Contributed by Alliance News
