28th Aug 2026 17:22
(Alliance News) - Stock prices in London closed higher on Friday, joining a broader rally across European and US equities, while Federal Reserve Chair Kevin Warsh's inflation warning boosted expectations for higher US interest rates.
The FTSE 100 index closed up 31.72 points, 0.3%, at 10,824.26. The FTSE 250 ended up 39.93 points, 0.2%, at 24,938.79, and the AIM all-share closed down 1.93 points, 0.2%, at 811.18.
The Cboe UK 100 closed up 0.2% at 1,074.82, the Cboe UK 250 up 0.2% at 21,687.36, and the Cboe small companies up 0.5% at 19,078.18.
In European equities on Friday, the CAC 40 in Paris closed up 1.0%, while the DAX 40 in Frankfurt ended up 0.8%.
The FTSE 100 joined in a broader rally, even as the index ended August lower for the month, while gilts eased after a key speech from Fed Chair Kevin Warsh in which he warned inflation is not meaningfully slowing, boosting rate-hike expectations.
Warsh said policymakers must be confident that inflation is slowing, otherwise the central bank has "work to do".
In his first speech since becoming chair of the central bank in May, Warsh reiterated that policymakers will return inflation to their 2% goal, which he said remains a firm and fixed target.
Samuel Tombs, chief US economist at Pantheon Macroeconomics, said: "Chair Warsh's Jackson Hole speech struck a pragmatic, slightly hawkish tone, spurring investors to price in 53bp of policy tightening over the next 12 months, up from 45bp beforehand."
Warsh inferred from the data that the economy appeared to have "strengthened", and concluded that "labor markets are consistent with full employment".
However, he said that "on the price-stability side of our mandate, the numbers are more concerning".
Tombs added: "Our base case that the FOMC will keep policy unchanged over the remainder of this year is under a little more pressure after Warsh's speech. We certainly wouldn't rule out a single 25bp hike in the funds rate by December.
"But we retain our view that policy will be eased next year, as the economy slows after a period of fiscal stimulus in the first half of 2026 and inflation pressures abate."
Short-term Treasury yields moved higher following the speech. The two-year Treasury yield rose to 4.30% from around 4.23% beforehand, as Warsh's comments were taken as a sign that interest rates could rise.
Longer-term Treasury yields, meanwhile, narrowed from levels seen immediately before Warsh's remarks.
The yield on the US 10-year Treasury was quoted at 4.68%, widening from 4.66% on Thursday but narrowing from 4.70% ahead of the speech. The yield on the US 30-year Treasury was quoted at 5.18%, unchanged from Thursday but narrowing from 5.21% ahead of the speech.
In New York, equity markets reacted positively to the speech. The Dow Jones Industrial Average was up 0.4%, while the S&P 500 index and the Nasdaq Composite were both 0.5% higher.
Kathleen Brooks, research director at XTB, said the dollar index "has also been given a boost by Warsh, and is the top-performing major currency on Friday."
She added: "The biggest losers on the forex front include EUR/USD and GBP/USD."
The pound was quoted at USD1.3560 at the time of the London equities close on Friday, down from USD1.3588 on Thursday. Against the euro, sterling rose to EUR1.1686 from EUR1.1663.
The euro fell to USD1.1603 from USD1.1650. Against the yen, the dollar rose to JPY160.00 from JPY159.31, reaching a three-week high.
Further warning signs over inflation emerged from Europe on Friday, as price growth accelerated in France and Spain.
In Spain, the annual headline inflation rate accelerated to 4.5% in August, its fastest pace since 2023. In France, inflation heated up to 2.7%, its highest rate since May.
Back in London, defence stocks were among the worst performers in the FTSE 100 amid uncertainty over whether the UK government will maintain its target of spending 3% of gross domestic product on defence by 2030, let alone 3.5% by 2035.
London-listed defence contractors Babcock International and BAE Systems fell to the bottom of the blue-chip index, down 2.4% and 2.3%, respectively.
UK Chancellor John Healey will shelve his target for defence spending to reach 3% of GDP by 2030 when he delivers his first budget in October, the Financial Times reported on Friday.
Citing government insiders, the FT said larger decisions over increasing defence spending will be delayed until a Treasury spending review next year.
Healey also told Sky News that "fiscal discipline" was the first priority for any chancellor, while acknowledging the financial pressures created by global conflict and rising security threats.
On the FTSE 250, Hays topped the index, up 5.1%, after Panmure Liberum upgraded the recruiter to 'buy', while XP Power stood at the other end of the mid-cap index, down 4.1%.
Among smaller caps, Sunda Energy jumped 26%, while McBride rose 23% after signing a "transformational" deal with Netherlands-based Vestacy, the home care company behind brands including Air Wick, Calgon, Cillit Bang and Mortein.
Analysts believe the manufacturing partnership will materially increase the cleaning products maker's scale, earnings and predictability.
Brent oil was quoted at USD88.06 a barrel at the time of the London equities close on Friday, down from USD88.67 late Thursday afternoon.
Gold was quoted at USD4,540.70 an ounce, down from USD4,597.90, with the precious metal among the assets hit hardest by Warsh's hawkish remarks.
XTB's Brooks said: "The focus on inflation has also knocked interest for gold...Gold is an inflation hedge, so it tends to underperform when the Fed is in inflation-fighting mode."
The biggest risers on the FTSE 100 were SSE, up 68.00p at 2,449.00p, Investec, up 18.00p at 663.00p, HSBC Holdings, up 24.40p at 1,528.40p, Severn Trent, up 46.00p at 3,146.00p, Standard Chartered, up 30.00p at 2,177.00p and Melrose Industries, up 6.20p at 515.20p.
The biggest fallers on the FTSE 100 were Babcock International, down 25.50p at 1,056.50p, BAE Systems, down 48.00p at 2,044.00p, Airtel Africa, down 7.20p at 332.80p, Auto Trader, down 8.20p at 528.00p, Howden Joinery, down 10.50p at 794.00p and Admiral Group, down 52.00p at 4,024.00p.
Financial markets in the UK will be closed on Monday for the Summer Bank Holiday.
On Monday's global economic calendar are China's NBS manufacturing PMI and Australian private sector credit figures.
On Tuesday's economic calendar in the UK are shop price inflation and mortgage approvals.
Elsewhere, Ireland releases manufacturing PMI and harmonised inflation figures, while the eurozone reports manufacturing PMI, consumer price inflation and unemployment. Germany releases export and import prices, consumer price inflation and retail sales.
Other manufacturing PMI readings on Tuesday include those from Australia, Japan, China and the US.
On Tuesday's UK corporate calendar, London-based distribution and outsourcing company Bunzl reports half-year results.
By Eva Castanedo, Alliance News senior economics reporter
Comments and questions to [email protected]
Copyright 2026 Alliance News Ltd. All Rights Reserved.
Related Shares:
BabcockBAE SystemsXp PowerHaysSunda EnergyMcbrideSSEInvestecHSBC HoldingsSevern TrentStandard CharteredMelroseAirtel AfricaAuto TraderHowden JoineryAdmiral