London — UK stocks traded lower on Tuesday as fresh data showing a weakening jobs market strengthened expectations of an imminent interest rate cut, while a sharp decline in oil prices dragged energy heavyweights BP and Shell to the bottom of the FTSE 100.
The benchmark FTSE 100 hovered in negative territory through the morning session, giving back earlier gains as investors digested a rise in unemployment to its highest level in almost a decade outside the pandemic period. The index was also pressured by falling crude prices, with Brent crude slipping below $60 a barrel for the first time in nearly five years.
Market sentiment remained cautious ahead of a highly anticipated Bank of England policy decision later this week, with most economists now expecting a rate cut as policymakers respond to growing signs of economic slowdown.
Unemployment Rises, Rate Cut Expectations Grow
Official figures released earlier Tuesday showed the UK unemployment rate climbing to 5.1%, marking its highest level since 2015 excluding the pandemic years. The data revealed that employers are continuing to shed jobs, particularly in construction, retail, and professional services, as higher borrowing costs and weaker demand take their toll.
The rise in joblessness has significantly increased expectations that the Bank of England will act at its upcoming meeting. Most City forecasters now anticipate a 25-basis-point rate cut, which would bring the base rate down to 3.75%, its lowest level since February 2023.
Economists say the labour market data gives policymakers greater confidence that inflationary pressures are easing.
“The labour market is clearly loosening at a faster pace than expected,” said one senior UK economist. “That gives the Bank room to support growth without reigniting inflation.”
Wage growth, while still elevated, showed further signs of moderation, reinforcing the case for monetary easing after months of stubbornly high price pressures.
FTSE 100 Pressured by Energy Stocks
Despite the growing prospect of lower interest rates, which typically support equity markets, the FTSE 100 struggled to gain traction due to weakness in its heavyweight energy sector.
Shares in BP fell sharply in morning trading, while Shell also moved lower, as Brent crude dropped around 1.5% to trade below $60 a barrel. The decline pushed oil to its lowest level since early 2020, reflecting concerns over global oversupply and softening demand.
Analysts pointed to a combination of rising production from non-OPEC countries and renewed hopes for a diplomatic breakthrough in the Russia–Ukraine conflict, which could further ease supply constraints.
“The oil market is pricing in a prolonged period of weaker demand,” said a commodities strategist. “If geopolitical risks continue to fade, that puts additional pressure on prices.”
Energy stocks have been a major driver of FTSE 100 performance over the past two years, and their recent slide has weighed heavily on the index.
Broader Market Performance Mixed
Outside the energy sector, trading across the London market was mixed.
Consumer-facing stocks showed modest resilience amid optimism that lower interest rates could ease pressure on household budgets. Hollywood Bowl shares rose after the leisure group reported record sales, benefiting from strong footfall and effective pricing strategies despite cost-of-living pressures.
Meanwhile, Rolls-Royce extended its recent gains after announcing progress on its share buyback programme, signalling confidence in its balance sheet and long-term outlook.
Financial stocks were more subdued, with banks edging lower on concerns that falling interest rates could squeeze net interest margins, even as loan demand remains soft.
The FTSE 250, which is more domestically focused and often seen as a barometer of the UK economy, outperformed the FTSE 100 slightly, supported by hopes that rate cuts could boost mid-sized companies.
Oil Below $60 Raises Inflation Questions
The sharp drop in oil prices has broader implications for inflation and monetary policy. Lower energy costs are expected to feed through into reduced fuel prices and lower transportation costs, helping to bring headline inflation down further in the months ahead.
That dynamic could strengthen the Bank of England’s resolve to begin easing policy after keeping rates elevated for an extended period.
However, some analysts cautioned that falling oil prices also signal weakening global demand, which could pose risks to economic growth.
“Cheaper oil is a double-edged sword,” said a market analyst. “It helps inflation, but it also reflects softer economic momentum globally.”
Investor Focus Turns to Central Banks
With the Bank of England decision looming, investors are increasingly focused on how quickly policymakers will move to support growth. While a rate cut on Thursday is widely expected, uncertainty remains over how aggressive the easing cycle could be.
Markets are currently pricing in two to three rate cuts over the next 12 months, depending on how inflation and employment trends evolve.
Global central banks are also under scrutiny. The US Federal Reserve has signalled patience on rate cuts, while the European Central Bank is expected to move cautiously as growth remains uneven across the eurozone.
These divergent policy paths could influence currency markets, with sterling remaining sensitive to any shift in expectations around UK interest rates.
Outlook Remains Cautious
As trading continued, analysts said volatility is likely to persist in the near term as investors weigh the benefits of lower interest rates against signs of economic fragility.
“The picture is mixed,” said one portfolio manager. “There’s relief that inflation pressures are easing, but the labour market data shows the economy is losing momentum.”
For now, the FTSE 100 appears caught between optimism over policy support and concerns about global growth and commodity prices.
With unemployment rising, oil prices falling, and central banks poised to act, markets are entering a pivotal phase that could shape investor sentiment heading into the second half of the year.
If you want, I can also:
✅ Rewrite this in Evening Standard house style
✅ Create SEO meta title & description
✅ Adapt it for Google News or A
ChatGPT can make mistakes. Check important info. See Cookie Preferences.