Following reports of a potential trade deal between the US and UK, the pound has remained steady against the dollar while UK mid-cap shares rallied as it coincides with the Bank of England’s expected interest rate decision that is likely to result in a quarter-point cut.
Sterling rose as much as 0.5% against the dollar after the New York Times reported the possible trade deal before trimming gains to trade flat on the day at $1.3288.
Britain’s Prime Minister Keir Starmer will provide an update later on Thursday on trade talks with the United States, a spokesperson for his office said.
A deal would be the second for Britain in a week after it clinched a free trade pact with India.
London’s FTSE 250 index of midcap companies, which are more sensitive to the domestic economy, rose 0.5%, beating the large-cap 100 index, which rose just 0.1%.
The globally focused FTSE 100 on Tuesday racked up 16 straight days of gains, its longest winning streak on record, powered by a solid first-quarter earnings season and optimism over a thawing in global trade tensions.
“Given that full trade deals take years to negotiate, this will likely be a framework and it will be interesting to see whether the 10 per cent baseline tariff stays as that will provide an important template for negotiations with other countries and a good guide to the long-term tariff strategy of the U.S.,” Deutsche Bank strategist Jim Reid said.
Unlike many of its major trading partners, the United States has a small trading surplus with Britain to the tune of some $12 billion. Britain’s main U.S. goods exports are in the form of cars, steel and pharmaceuticals.
Shares in energy companies were the prime gainers on the mid-cap index, while the FTSE 100 kept in positive territory thanks to a rally in the aerospace and defence sector, while drugmakers Astrazeneca and GSK proved the biggest drags.
Meanwhile, traders geared up for the BoE’s decision on interest rates, which is expected to result in a quarter-point cut later on Thursday. Investors are almost fully priced in three additional rate cuts by the end of the year, which would take the benchmark rate to 3.5 per cent.
Will Hobbs, who is head of UK Multi-Asset Wealth at Barclays Private Bank and Wealth Management, said UK households have seen wage growth outpace inflation, which has helped boost consumption, for now.
“The uncertainty created by the U.S. tariffs will certainly have some dampening effect. However, there are potential offsets in the form of lower energy prices and the dramatic changes happening in Europe. The latest read on inflation suggests a little more flexibility for the Bank of England ahead of today’s decision,” Hobbs told clients in a note.
Much has changed since BoE’s last monetary policy report in February, including Trump’s proposals for global tariffs, embroiling the UK and other major trading partners in a trade war.
