FTSE 100 hits record as UK jobs data boosts rate-cut hopes

​​​UK unemployment rises to highest since 2021

​The UK unemployment rate climbed to 5%, marking the highest level since 2021 and signalling a weakening labour market. This increase reinforces growing expectations that the Bank of England (BoE) will cut interest rates in December.

​Payrolled employees fell by 32,000 during the period, adding to evidence of softening demand for labour across the economy. The decline suggests businesses are becoming more cautious about hiring amid economic uncertainty.

​The labour market data painted a picture of an economy cooling faster than many analysts had anticipated. This cooling provides the BoE with additional justification to ease monetary policy in the near term.

​Market participants interpreted the unemployment rise as a clear signal that the economy needs support. The data strengthened the case for looser monetary policy to prevent further deterioration in employment conditions.

​Wage growth cools below forecasts

​Average pay including bonuses slowed to 4.8%, coming in below market forecasts and marking another step towards the BoE's inflation targets. This deceleration in wage pressure represents a key development for policymakers concerned about persistent inflation.

​The cooling in pay growth suggests that the tight labour market conditions seen over the past two years are finally easing. Workers' bargaining power appears to be diminishing as unemployment rises and job opportunities become scarcer.

​BoE officials have repeatedly cited wage growth as a critical factor in their inflation assessments. The downward trend in pay increases removes a significant obstacle to interest rate cuts.

​However, Monetary Policy Committee member Megan Greene warned that inflation persistence remains a concern. Her cautious tone contrasted with the market's enthusiastic response to the softer wage data.

​Gilt yields plunge on rate cut bets

​Two-year gilt yields dropped around seven basis points to their lowest level since August 2024. The sharp decline reflected traders rapidly repricing expectations for BoE policy following the labour market data.

​Markets now assign over an 80% probability to a December rate cut, up significantly from levels seen before the jobs report. This conviction drove substantial demand for shorter-dated government bonds most sensitive to near-term policy changes.

​The gilt rally extended across the curve, though shorter maturities outperformed as investors focused on imminent monetary easing. The moves suggested traders believe the BoE  has clear room to ease policy without reigniting inflation.

​The bond market response contrasted with Megan Greene's warning about inflation risks. However, investors appeared to view the disinflation trend as the dominant force shaping policy decisions in coming months.

​FTSE 100 extends rally to fresh record

​The FTSE 100 surged more than 1% to reach a new all-time high. The rally combined enthusiasm about potential rate cuts with strong corporate news from index heavyweights.

​Vodafone provided a significant boost after guiding to the upper end of its profit outlook and announcing a new dividend policy. The telecommunications giant's positive stance lifted sentiment across the sector.

​European markets joined the advance, with the STOXX 600 adding 0.5%. Relief over the likely end of the US government shutdown provided additional support for risk assets across the region.

​The index's composition, heavily weighted towards international earners, benefited from sterling weakness. As the pound fell on rate cut expectations, overseas revenues became more valuable in sterling terms for multinational companies.

​Defensive sectors lead rotation

​Utilities and consumer staples outperformed as investors rotated towards rate-sensitive, income-focused shares. These defensive sectors typically benefit from falling interest rates as their dividend yields become more attractive relative to bonds.

​Telecommunications stocks rallied strongly, supported both by Vodafone's guidance and the broader rate cut narrative. The sector's stable cash flows and high dividend yields appeal to income-seeking investors in a lower rate environment.

​Informa, DCC and Rank Group all reaffirmed their financial outlooks, providing additional support to sentiment. However, Hilton Food struck a more cautious note regarding 2026 prospects, highlighting ongoing challenges in some areas.

​The defensive rotation represented a shift from recent market leadership. Growth and cyclical sectors that had driven gains earlier in the year took a backseat as investors repositioned for a changed interest rate backdrop.

​Sterling slips on dovish shift

​The pound fell approximately 0.4% to just above $1.31 against the US dollar. The decline reflected growing conviction that the BoE will ease policy sooner rather than later.

​Currency markets moved swiftly to price in the implications of weaker labour data. Sterling's weakness against major currencies accelerated through the session as rate cut probabilities climbed.

​Global backdrop remains supportive

​The US Senate's progress on a shutdown deal continued to underpin broader market sentiment. This political development removed a layer of uncertainty that had been weighing on risk appetite in recent sessions.

​European indices benefited from both the US news and the UK rate cut narrative. The combination of factors created a supportive environment for equities across developed markets.

​However, Chinese equities lagged on renewed trade worries. Concerns about US-China relations and the potential for new tariffs weighed on sentiment towards Asian markets.

​The divergence between Western and Chinese equity performance highlighted how geopolitical factors continue to influence investment flows. Investors appeared more comfortable with rate cut stories in developed markets than trade uncertainty in Asia.