The FTSE 100 index advanced on Friday, closing 0.6% higher at 10,686.89 points. The London benchmark found support from a significant U.S. Supreme Court ruling that invalidated sweeping import duties enacted during the Trump administration. However, former President Donald Trump promptly announced a new, blanket 10% tariff under a separate legal provision, ensuring trade policy uncertainty remains a key market focus.
Market Performance and Sector Moves
The index stabilized after a volatile week, briefly touching a record intraday high of 10,745.76. The mid-cap FTSE 250 also rose, gaining 0.7%. For the week, defence sector shares were standout performers, surging 6.7% amid ongoing geopolitical tensions. In corporate news, Diageo (DEO) shares jumped 3.9% following reports of an executive management reshuffle. In contrast, luxury carmaker Aston Martin Lagonda Global Holdings saw its shares decline 1.4% after issuing a warning of a larger-than-expected annual loss.
Trade Policy Developments and Business Reaction
The U.S. Supreme Court's decision to strike down the previous tariffs provided a temporary lift to global risk sentiment. Trump's subsequent move to impose a new 10% duty using Section 122 of the 1974 Trade Act—a provision allowing temporary tariffs for up to 150 days—introduced fresh complexity. The UK government stated it expects Britain's "privileged trading position" with the United States to continue, noting that most bilateral trade falls under a separate tariff agreement. William Bain, Head of Trade Policy at the British Chambers of Commerce, commented that the court ruling did "little to clear the murky waters for business," highlighting ongoing uncertainty for exporters.
Robust UK Economic Data
Domestic economic indicators provided a solid backdrop for UK equities. Official data showed retail sales volumes rose 1.8% in January from December, significantly surpassing economist forecasts. Compared to January a year ago, sales were up 4.5%, marking the largest annual gain since February 2022. The Office for National Statistics noted strong sales of artwork and antiques, alongside robust demand from online jewellers. Excluding fuel, sales increased 2.0% month-on-month. Thomas Pugh, Chief Economist at RSM UK, suggested consumers were "opening their wallets again" as previous budget-related uncertainties faded.
Business survey data echoed this positive trend. The S&P Global UK composite Purchasing Managers' Index (PMI) rose to 53.9 in February from 53.7 in January. A reading above 50 indicates economic expansion. The services PMI edged down slightly to 53.9, while the manufacturing PMI climbed to 52.0, its highest level in 18 months. Investors are now looking ahead to Chancellor Rachel Reeves's budget update scheduled for March 3.
Inflation and Interest Rate Outlook
Despite the encouraging data, analysts cautioned that inflationary pressures, while easing, have not disappeared. Allan Monks, an economist at J.P. Morgan, warned, "Inflation stickiness is an issue that has improved but has not gone away." The market's attention is firmly fixed on the Bank of England's next monetary policy decision due on March 19. The Bank Rate currently stands at 3.75%, and investors will be scrutinizing the committee's guidance for signals on the timing of potential rate cuts.
Broader Market Context and Risks
The previous trading session served as a reminder of the index's sensitivity to individual stock movements. On Thursday, the FTSE 100 fell 0.5%, dragged down by a 3.6% drop in Rio Tinto (RIO) shares after its annual earnings disappointed, and a 5.1% slide in Centrica (CPYYY) following a profit warning from its energy trading arm and a pause to its share buyback program.
The U.S. tariff ruling also revived discussions about potential tariff refunds and a widening fiscal deficit in the United States—factors that could push government bond yields higher and pressure equity valuations. Nick Rees, Head of Macro Research at Monex Europe, noted, "Whether the market reaction sticks is going to depend on the details," as investors attempt to price in the next shift in policy.
Market direction at Monday's open will likely hinge on whether the tariff narrative cools over the weekend or takes another turn, and on how U.S. Treasury yields and the U.S. dollar respond. For UK investors, the upcoming Bank of England meeting remains a critical fixed event on the economic calendar.
