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FTSE soars for fourth session

Stock market at four year high on interest rate hopes

Mark CarneyThe FTSE 100 enjoyed its biggest weekly rise for four and a half years and hit a 10-month high – a stark contrast to last Friday when it crashed following the Brexit vote.

Shares in the blue-chip index finished the week 7.2% higher at 6,577.83 points, its fourth straight session in positive territory and the strongest weekly rise since the end of 2011.

Traders noted the positive impact on the UK economy of the lower pound and encouraging suggestions from Mark Carney, governor of the Bank of England, who said there could be a summer cut in interest rates. This is likely to depress sterling further, giving a boost to exports.

Mr Carney (pictured) said there was likely to be further monetary easing to help the UK economy cope with the impact of the ‘Brexit’ vote.

The UK blue-chip index closed 73.65 points higher at 6,577.83, building on yesterday’s 144 points surge, while the pound fell 0.28% to $1.32691.

Chancellor George Osborne today said he was giving up on his centrepiece policy of turning Britain’s budget deficit into a surplus by 2020, because of potential economic stress following the Brexit decision.

“The government must provide fiscal credibility, so we will continue to be tough on the deficit but we must be realistic about achieving a surplus by the end of this decade,” Mr Osborne said in a speech.

Martin Beck, an economist with EY ITEM Club, said Mr Osborne’s announcement could help to counter the Brexit hit to confidence in the economy.

“This is a welcome step at a time of economic uncertainty. Achieving a surplus was always set to drag on activity over the next few years,” Mr Beck said.

On Thursday Mr Carney, who emphasised that he was giving a personal rather than a monetary policy committee view, said: “In my view, and I am not pre-judging the view of other independent monetary policy committee  members, the economic outlook has deteriorated and some monetary policy easing will be required over the summer.”

There has been increasing speculation of a cut interest rates from their historic low of 0.5% where they have remained since March 2009.

Alternatively it is thought the Bank could relaunch quantitative easing.

But Mr Carney also warned there was a limit to how low rates could go. “As we have seen elsewhere, if interest rates are too low (or negative), the hit to bank profitability could perversely reduce credit availability or even increase its overall price,” he said.

 

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