FTSE 100 hits record high but closes lower

The FTSE 100 index achieved a new intra-day record on Thursday, but ultimately closed lower as investors processed corporate earnings reports and interest rate decisions from both the UK and the United States. The main index finished the day down 11.14 points, a 0.1% decrease, settling at 10,897.27. Earlier in the session, it had climbed to a high of 10,979.60.

Bank of England Maintains Interest Rates

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In London, the Bank of England's Monetary Policy Committee voted by a margin of 6-3 to hold the bank rate at 3.75%. This marks the fifth consecutive meeting this year where rates have remained unchanged, following a quarter-point increase in December. Economists Huw Pill and Megan Greene, along with Catherine Mann, voted in favour of a rate increase. Despite the hawkish shift in the voting, Bank of England governor Andrew Bailey sought to temper expectations of an imminent hike. He informed reporters at a press conference, 'Please do not leave this room thinking that the Bank of England is edging towards a hike.' He reiterated that the decision to keep the bank rate unchanged was the relevant conclusion from the meeting.

Market reaction in the bond market suggested agreement with Mr Bailey's assessment. The yield on 10-year gilts decreased to 4.99% from 5.04% the previous day. Analysts at RBC Capital Markets noted that while the voting split was more hawkish than anticipated, the meeting minutes discussed disinflationary trends in a dovish manner. Research director Kathleen Brooks of XTB observed that financial markets are now pricing in a lower probability of a rate increase at the Bank of England's next meeting, with a 40% chance compared to over 50% before the announcement. Ms Brooks commented that the meeting solidified the Bank's 'active hold' approach, indicating readiness to act if necessary but requiring a significant worsening of the inflation outlook.

US Inflation Data and Currency Movements

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On currency markets, the pound saw gains against the dollar, trading at 1.3439 dollars compared to 1.3284 dollars at the previous day's close. Sterling remained steady against the euro, trading at 1.1671 euros. In the United States, data indicated that personal consumption expenditures (PCE) inflation fell by 0.1% in June. Annual core inflation, which excludes volatile food and energy prices, eased to 3.3%. This followed a broader trend of slowing price increases, with annual PCE inflation decreasing to 3.7%.

Corporate Performance

Rolls-Royce was a notable performer on the stock market, with its shares rising 6.0%. The aerospace and defence company announced it had increased its financial guidance again following strong first-half profits. The company reported a 17% increase in operating profit to £2.42 billion for the first half of 2026, up from £2.07 billion in the prior year. Underlying operating profit grew by 46% to £2.53 billion. Revenue also increased by 21% to £11.45 billion. Analysts described the results as 'another very strong quarter with blow-out margins across the board'.

Lloyds Banking Group's shares climbed 3.9% as it presented its financial targets through to 2030 and reported better-than-expected financial results. NatWest also saw gains, rising 2.8% ahead of its own earnings announcement. In contrast, Rentokil Initial experienced a significant share price drop of 21%. The company announced plans for increased investment in its North American business, leading to a revision of its margin targets, as performance in that region fell short of expectations.