FTSE 100 falls as investors await Bank of England decision

The FTSE 100 is lower ahead of the BoE decision

The FTSE 100 is trading lower on Thursday morning, closer to 10,440 than the 10,450 pre-open level flagged in the original note. The move follows two sessions of gains and comes as investors wait for the Bank of England's latest interest-rate decision.

The weakness is not only about domestic data. Energy and mining shares are weighing on the index as oil and base-metal prices soften, while Tesco is also under pressure after first-quarter UK comparable sales came in below expectations. That leaves the broader UK market vulnerable to a cautious tone from policymakers later in the day.

The labour-market data were stronger, but not clean

The first important UK data release came from the labour market. The Office for National Statistics said the unemployment rate fell to 4.9% in February to April 2026, below expectations for 5.0% and down 0.3 percentage points on the latest quarter.

The payroll figures were also better than feared on the headline. The early estimate for May showed payrolled employees rising by 2,000 on the month, compared with expectations for a fall. However, the ONS stressed that this estimate is provisional, and payrolled employees were still down by 119,000 over the year. Vacancies also fell to 707,000, their lowest level since February to April 2021.

Wages keep the inflation question alive

The wage data are another reason the Bank of England is unlikely to sound relaxed. Regular pay rose 3.4% year on year in February to April, while total pay including bonuses rose 4.4%. Public-sector regular pay growth was stronger at 5.1%, although the ONS said this was affected by the timing of pay awards.

That matters because yesterday's inflation release was softer but not decisive. CPI held at 2.8% in May, below forecasts for a rise towards 3.0%, but core CPI edged up to 2.6% and services inflation rose to 3.7%. For the BoE, the mix argues for caution: inflation pressure has eased, but wage growth and services inflation have not disappeared.

A hold still looks likely, but guidance is the market risk

The Bank of England's current Bank Rate is 3.75%, and markets widely expect the Monetary Policy Committee to leave it unchanged today. The more important question is whether the statement and vote split point to a higher-for-longer stance, or whether the committee puts more weight on easing inflation and weaker hiring momentum.

A hawkish message could keep UK gilt yields and sterling supported, but it may also weigh on rate-sensitive parts of the FTSE 100 and FTSE 250. A softer message would probably help domestic equities, although the Bank may be reluctant to offer much reassurance while inflation remains above the 2% target.

The Fed has raised the bar for a dovish BoE surprise

The global backdrop is less forgiving after yesterday's Federal Reserve decision. The Fed held the target range for the federal funds rate at 3.50% to 3.75%, but its statement kept the focus on elevated inflation and the new projections pointed to a more hawkish rate path than investors had expected.

That matters for London because global yields and the US dollar can shape UK risk appetite even when the domestic catalyst is the BoE. If the Bank of England echoes the Fed's inflation caution, the FTSE 100 may remain under pressure through the session. If it sounds more balanced, the index could stabilise, but the bar for a clearly dovish reaction looks higher than it did before the Fed.