The FTSE 100 index concluded Friday's session with a solid advance, rising 0.42% to close at 10,446.35 points. This performance positioned the benchmark near its all-time highs, marking a third consecutive weekly gain for London's premier equity gauge. The supportive backdrop was characterized by a resurgence in corporate takeover activity and persistent market expectations for forthcoming monetary policy easing from the Bank of England.
Deal Momentum and Monetary Policy Outlook
Merger and acquisition headlines provided significant impetus. The notable transaction involved asset manager Schroders, which agreed to a sale to Nuveen valued at £9.9 billion. This deal has sparked analyst speculation about further consolidation within the European asset management sector. Concurrently, investors continued to price in a high probability of an interest rate cut in March, with money markets indicating a 63.4% chance of a 25-basis-point reduction. This expectation persisted despite recent commentary from Bank of England Chief Economist Huw Pill, who noted that underlying inflation remains around 2.5% and suggested current interest rates might be "a little bit too low," tempering expectations for aggressive near-term easing.
Corporate Highlights and Sector Moves
Individual stock movements were mixed. Banking giant NatWest Group saw its shares decline approximately 2.5% following the release of its annual results, even as the company reported a 2025 pretax profit of £7.7 billion and announced an increased return-on-tangible-equity target. In contrast, the defence sector exhibited notable strength into the close, a theme that built throughout the trading week. Shares of Rolls-Royce advanced 3.6%, while BAE Systems gained 2.2%, buoyed by investor focus on UK defence spending plans and discussions at the Munich Security Conference.
The FTSE 250 mid-cap index also finished in positive territory, adding 0.5% on the day. Market sentiment navigated between optimism from deal flow and concerns over the potential disruptive impact of advancing artificial intelligence technologies on various business models.
Macroeconomic Context and Currency Movements
The broader economic landscape provided context for the rate-cut narrative. Official data confirmed the UK economy grew a mere 0.1% in the fourth quarter, a disappointing figure that reinforced arguments for monetary support. In currency markets, sterling was on track for its most significant weekly decline against the euro in over two months, pressured by the weak growth data and political uncertainties. The euro traded near 87.05 pence, appreciating roughly 0.3% over the week.
Looking Ahead: Inflation Data and Earnings Wave
The upcoming week presents critical tests for the market's prevailing assumptions. The primary domestic focus will be Wednesday's UK inflation report, followed by retail sales figures on Friday. These releases will be scrutinized for signals on the pace at which price pressures are abating, which will directly influence expectations for the Bank of England's March policy decision.
Corporate news flow will remain heavy. A packed earnings diary includes updates from major constituents such as Antofagasta, Coca-Cola Europacific Partners, and InterContinental Hotels Group on Tuesday; BAE Systems and Glencore on Wednesday; and Centrica, Mondi, and Rio Tinto on Thursday. As trading resumes on Monday, investors will monitor whether defence stocks can maintain their momentum based on weekend developments from Munich and, more crucially, await the inflation data that could redefine the trajectory for UK interest rates.
