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European shares extend gains, bond yields jump again
The German stock market has extended gains, with the Dax in Frankfurt opening 1.1% higher. Investors have been cheered by what economists nickname Berlin’s “big bazooka,” a fiscal sea change that could revive the German economy.
Other European stock markets are also pushing higher, extending yesterday’s rally. France’s CAC is 0.6% ahead while Italy’s FTSE MiB has climbed more than 1%. The pan-European Euro Stoxx index has risen by 0.5%.
The FTSE 100 index in London is bucking the trend, down by 0.2% or 17 points at 8,737.
Germany’s borrowing costs are still rising after the prospective partners in the next German government agreed on Tuesday night to loosen the controversial debt brake to allow higher spending on infrastructure and defence.
The yield, or interest rate, on the 30-year German government bond has risen by 8 basis points to 3.15% this morning, after jumping by 25bps at one stage yesterday. The yield on the 10-year bond is up by 10bps to 2.886%.
The yield on the two-year UK government bond, known as gilt, is also surging, rising by 11bps to 4.396%, the highest since 21 January.
BCC predicts 'long and challenging year for UK businesses'
The British Chambers of Commerce (BCC) is predicting “a long and challenging year for UK businesses”.
It has become more gloomy about the growth outlook for the UK and said firms will struggle to invest as they deal with a raft of rising cost pressures.
The business lobby group now expects the UK economy to grow by 0.9% this year, revised down from its previous forecast of 1.3%. This year’s limited growth will be driven largely by increased day-to-day government spending. Growth is expected to accelerate slightly in 2026 to 1.4%, but that is also slightly down from the last forecast of 1.5%.
With businesses facing increased cost pressures following the autumn’s budget, inflation is now expected to remain above the Bank of England’s target until the last quarter of 2027. Inflation is forecast to be 2.8% by the end of this year, up from 2.2% in the last forecast, before falling to 2.1% by the end of 2026 and 2% in the fourth quarter 2027. The BCC expects unemployment to rise to 4.6% by the end of this year, from 4.4% now.
With stubborn inflationary pressures in the economy, the BCC is forecasting the Bank of England will continue to take a cautious approach to interest rate cuts. It expects just one cut in the base rate to 4.25% by the end of 2025, rather than two cuts to 4% as previously forecast. The rate is seen falling to 4% in 2026. No further cuts are then predicted through to the end of 2027.
Vicky Pryce, chair of the BCC Economic Advisory Council, said:
This is going to be a long and challenging year for UK businesses. The BCC’s forecast shows an economy struggling without the secure foundations to kickstart business investment.
Inflation will continue to be stubborn this year forcing the Bank of England to keep interest rates relatively high. Global uncertainties will add further dark clouds to the economic climate.
Businesses can’t simply rely on the promise of long-term strategies from government, they need support now to invest, recruit and trade.
Introduction: Pound rises above $1.29 as Trump fears hit dollar; Poundland chain up for sale
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
The pound has risen further to the heady heights of $1.29. It’s now trading above that level at $1.2916, the highest in four months and up nearly 0.2%.
Sterling has been boosted by a general slide in the US dollar, and a brighter mood in markets following a reprieve on US tariffs and the prospect of higher infrastructure and defence spending in Europe, led by Germany.
The dollar slid further against a basket of major currencies, after news that Donald Trump will exempt carmakers from 25% tariffs on Canada and Mexico for a month as long as they comply with free trade rules.
The euro also continues its rally and has hit a four-month high against the dollar, amid optimism sparked by Germany’s proposed €500bn infrastructure fund and overhaul of its borrowing rules. The European single currency rose by 0.3% to $1.0820 for the first time since 7 November.
Asian stock markets bounced, led by Hong Kong’s Hang Seng, up by 3.06% while Japan’s Nikkei climbed by 0.77%. In China, the Shanghai Composite rose by 1.17% while the Shenzhen Composite gained 1.77%.
The South Korean Kospi added 0.7%, despite news that a pair of fighter jets accidentally dropped eight bombs in a civilian district during a military exercise. Fifteen people were injured, two of them seriously.
European discounter Pepco Group said it is evaluating all strategic options to separate its struggling 825-store Poundland business in Britain this year, including a potential sale.
Ahead of an investor day, the Warsaw-listed group, which also owns the Pepco and Dealz brands, said it will focus on the Pepco brand “as the single future format and engine driver of group earnings”.
Pepco said in December it was considering options for the Poundland chain after it booked a €775m impairment charge, plunging the group to an annual loss of €662m.
Group like-for-like sales were up 1.5% in the eight weeks to 2 March, “with a strong performance from Pepco and Dealz offset by continued challenges at Poundland”.
The agenda
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8.30am GMT: Eurozone HCOB construction PMI
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9.30am GMT: UK S&P Global Construction PMI
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10am GMT: Eurozone retail sales for January
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1.15pm GMT: European Central Bank interest rate decision (quarter point cut forecast)
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1.30pm GMT: US trade for January, initial jobless claims for week of 1 March
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1.45pm GMT: ECB press conference
2.45pm GMT: ECB staff macroeconomic projections -
3.15pm GMT: ECB president Christine Lagarde speech
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8.15pm GMT: Bank of England policymaker Christine Mann speech
