A few words from the Bank of England's monetary policy committee sent the stock market racing ahead yesterday, despite another quarter of a percentage point increase in base rates.
"Upward pressures on the exchange rate should be reduced by the perception that interest rates have reached a level consistent with the inflation target," the committee said. The market quickly interpreted that statement as a hint that the bank, having increased rates to 7 per cent, would not move again for some time.
Despite a knee-jerk fall immediately after the rate increase, announced at noon, the FTSE-100 index quickly rebounded and raced ahead. Helping the rally was a decline in sterling, as the foreign exchange markets also took the view that British rates had peaked. The pound dropped three pfennigs against the D-Mark to DM2.97, making a drop of 8 1/2 pfennigs in two days, and 1 1/2 cents against the US dollar.
Other markets were also supportive, with the benchmark 10 year gilt up almost half a point, European bourses ahead and Wall Street once again strong. The Dow Jones Industrial Average was around 20 points higher when London closed.
All this sent shares into overdrive, with Footsie rising 60.6 points, its third consecutive 60plus point gain, to close at 5,086.8. That, of course, was an all-time closing high and Footsie also set a new intra-day peak of 5,095.3.
Significantly, the strength of the leaders was also reflected in the mid-cap stocks, with the FTSE Mid-250 index gaining 80.9 to 4,598.2. The FTSE All-Share Index gained 29.33 to an all-time closing high of 2,369.07.
However, smaller companies were once again left behind in the rush and the SmallCap index gained just 8.4 to 2,197.2. It is well short of its peak of 2,374.2, set on March 12th.
