London's week: the Fed hiked, but the gilt market moved the FTSE

A 1.19% jump on Thursday, to a close of 10,816.14, was the FTSE 100's best session of the week — and it did not come from the Federal Reserve's first interest-rate rise in more than three years. It came from the Bank of England deciding to stop selling long-dated gilts.

That is not the week we told readers to expect. On Monday morning our note led with Brent crude jumping more than 2% past $108 a barrel after Gulf-Iran talks on Strait of Hormuz shipping were postponed, and oil stayed the headline through Tuesday and Wednesday as Saudi Arabia's East-West pipeline — a route carrying roughly 4% of global supply — remained shut. We flagged three scheduled catalysts on Monday: UK labour-market figures on Tuesday, the Fed on Wednesday, the Bank of England on Thursday. All three landed. Only one of them moved London.

Our logged sentiment tracked the confusion honestly enough: Mixed on Monday, then Cautious for three consecutive sessions, then Mixed again on Friday. What that run conceals is that the thing making us cautious changed halfway through. It started as an oil supply shock. It ended as a gilt market problem — and it was the gilt market, not the oil price, that produced the week's only decisive move.

How the week unfolded

The first three sessions were a standoff. Brent above $107 was good for the index's heavyweight energy names and bad for everything the Bank of England had to think about, so London went nowhere in particular: up 0.4% on Monday to 10,697.57, softer on Tuesday, cautious on Wednesday ahead of the Fed. Underneath, the same worry appeared in all five of our notes — the 10-year gilt yield opened the week at 5.36%, close to a 19-year high, with the 30-year near 6%, a level last seen in 1998. We kept writing that line because it kept being true.

Tuesday's labour-market data came in split. The unemployment rate held at 4.9%, slightly better than the 5.0% expected, but payrolled employment fell by 26,000 in August against forecasts of a 5,000 decline, and vacancies dropped to 702,000 in the three months to August, the lowest since 2021. Regular pay growth of 3.5% was in line. A weakening labour market and 3%-plus inflation is an awkward combination, and it did nothing to settle the rate debate.

Wednesday's Fed decision resolved exactly as our Tuesday and Wednesday notes implied it would. We wrote that futures markets priced roughly a 92% chance on Tuesday, and 88% on Wednesday morning, of a quarter-point rise. The Fed raised its target range to 3.75%-4.00%, its first increase in more than three years, with chair Kevin Warsh warning that inflation remains persistent. The read-across was ugly: the Dow fell 1.21% and the US 10-year Treasury yield had already pushed above 5% for the first time since 2007.

Thursday's Bank of England decision is where our own framing was half right and half wrong. We said policymakers were widely expected to hold Bank Rate at 3.75% on a split vote, and they did — 6-3, with three members voting for a quarter-point rise to 4%. We also flagged, correctly, that this meeting doubled as the Bank's annual verdict on the pace of quantitative tightening. What we underplayed was how much that second decision mattered. The MPC voted unanimously to stop selling long-dated gilts altogether, restructuring active sales towards shorter and medium maturities and pausing APF auctions while it reviews the programme. Long gilt yields fell, the 30-year retreated from the 5.747% it had touched earlier in the week, and London rallied 1.19%.

Friday gave some of it back. The index pulled off Thursday's one-week high, trading around 0.6% to 1% lower through the session as banks and energy stocks led the fallers — Lloyds off 1.2%, HSBC off 0.6% — with Brent sliding for a third straight session to near $103.61 on signs Saudi Arabia could restore roughly half its pipeline capacity within days. Even after that pullback, the FTSE 100 was set for its largest weekly gain since late July, having started the week near 10,655. The 10-year gilt yield ended around 5.25%, below where it began.

So the through-line is a reversal. The supply shock that opened the week faded; the borrowing-cost problem that we treated as background in every note turned out to be the foreground.

The names that moved it

Next was the week's clearest corporate story. On Thursday the retailer raised full-year pre-tax profit guidance by £12m to £1.255bn after first-half pre-tax profit rose 10.5% to £569m, and declared a 98p interim dividend for the six months to 1 August — up 13% on last year's 87p, payable on 4 January 2027. The upgrade split into £5m from higher sales expectations and £7m from cost savings, mostly in warehousing, and the growth was overwhelmingly international: online international full-price sales rose 23.9% against 3.6% in the UK. It is the latest in a run of upgrades from Next this year.

BP and Shell were the only names we flagged in three separate sessions, and they earned it in the first half of the week and gave it back in the second. Dearer crude helped the earnings case on Monday and Tuesday; by Friday, with Brent down more than 2% on the day, energy was among the heaviest drags on the index. Anyone watching BP this week was really watching the Strait of Hormuz.

Sage Group and RELX produced Monday's most interesting move, and it was a defensive one: Sage jumped 3.9% to 995.1p and RELX gained 5.7% as investors rotated out of the most experimental AI names and into established software, after AI-safety warnings and an investment-slowdown signal from large US AI firms. That rotation is what kept the FTSE 100 green on Monday while the FTSE 250 fell 0.6% to 23,834.48.

Barratt Redrow reported a 48.2% jump in statutory pre-tax profit on Wednesday alongside 17,667 completions, up 5% on the year — a housebuilder result that reads very differently depending on where gilt yields settle.

Harworth Group supplied Friday's takeover drama, its board unanimously rejecting Peel Bidco's raised 177.5p-a-share offer, valuing the property group at about £600m, as a 17.4% discount to June net asset value of 214.8p. And Investec guided to adjusted earnings of 41.7p to 43.3p a share, up 3% to 7%, with its UK arm expected to lag Southern Africa. You can screen the index constituents on our screener.

What to watch next week

Monday 21 September: the FTSE 100 quarterly reshuffle takes effect at the open. easyJet and Ithaca Energy join the blue-chip index; Entain and Persimmon drop into the FTSE 250.

Sunday 25 October: the deadline for Harworth shareholders to respond to Peel's mandatory offer, triggered when Peel's stake crossed the 30% threshold.

Thursday 5 November: the Bank of England's next scheduled rate decision, the first since this week's 6-3 hold and the restructuring of its gilt-sales programme.