UK rate cuts are looming, FTSE to benefit as pound loses
Fresh signals from the UK Budget have strengthened expectations for rate cuts. Softer sterling and globally exposed UK equities stand to benefit most, writes Nigel Green.
The UK Budget’s policy mix points to rate cuts ahead, and Nigel Green argues that while sterling may soften, internationally focused UK equities could be the winners.
Fresh fiscal signals from this week’s UK Budget have changed the calculus, and our central assumption is that interest-rate cuts are coming.
It’s now our base case for one in December and three in 2026 – more than most market participants are factoring-in.
If we’re correct, it has clear consequences for the pound, equities, and investor positioning.
The Budget delivered clarity on fiscal direction at a sensitive point in the economic cycle. Growth is slowing, tax burdens are rising, and the room for fiscal support is limited. In that environment, our assessment is that the pressure shifts onto monetary policy to carry more of the adjustment over time. That’s the context in which our interest-rate assumption sits.
If easing proceeds along the lines we expect, the pound becomes the release valve. Lower expected rates compress sterling’s yield support and reduce its appeal relative to other major currencies.
The result is usually not a sharp repricing, but a steady erosion as capital reallocates toward markets offering stronger growth or higher returns.
This is not ideology; it is market structure. When rate differentials narrow and domestic momentum softens, currencies adjust. Even modest changes in the perceived direction of policy are enough to shift positioning, particularly in a currency that has relied heavily on yield and stability to attract inflows.
Sterling weakness, however, does not map neatly onto equity weakness. In the UK, the relationship often runs in the opposite direction. The composition of the stock market matters.
The FTSE is dominated by companies generating the bulk of their revenues overseas, often in dollars and euros, while costs and reporting remain sterling-based.
As the pound softens, foreign earnings expand in local-currency terms. Profit expectations improve without any change in operational performance. Cash flow strengthens. Dividend cover looks more secure. These effects are mechanical, but they are powerful, particularly in income-heavy markets like the UK.
That translation benefit explains why UK equities have historically shown resilience during periods of domestic strain.
Global energy companies, miners, pharmaceutical groups, defence contractors, consumer staples and international banks are far more sensitive to commodity prices, global demand, and exchange rates than to UK consumption. Currency weakness enhances that insulation.
This dynamic is widely acknowledged in theory and underestimated in practice.
Commentary on UK markets often treats slower domestic growth as a blanket negative. In reality, it redistributes advantage within the market. Exporters and international earners gain relative strength, while purely domestic businesses face tighter margins and softer demand.
From an international investor’s perspective, the implications are attractive. UK equities already trade at valuation discounts to global peers, reflecting years of political uncertainty, subdued growth, and inconsistent capital flows.
A weaker pound lowers entry points further while improving reported earnings. The risk-reward profile becomes asymmetric.
For sterling-based investors, the calculus is different but no less relevant. Overseas assets benefit from currency translation, while UK-listed multinationals offer partial protection against domestic headwinds. Portfolio construction, rather than market sentiment, becomes the critical variable.
None of this requires rate cuts to be delivered on a specific timetable. Markets price probability, not promises.
Our central assumption is that easing lies ahead because growth momentum is weakening, fiscal policy is restrictive, and inflation pressures are easing. Currency and equity markets respond to that balance of risk, not press conferences.
Critically, this is not an argument rooted in optimism about the domestic economy. It is an assessment of how capital behaves in a world of relative returns. The pound absorbs adjustment. International earnings gain value. Equity indices with global exposure find support even as the economy slows.
It also explains why sterling weakness should not automatically be read as a loss of confidence. Currencies are adjustment mechanisms. They move to restore competitiveness and rebalance capital flows. In the UK’s case, that adjustment has often helped sustain equity returns rather than undermine them.
Investors who focus narrowly on the headline economy risk missing this relationship. Those who focus on structure, incentives, and currency dynamics are better positioned to exploit it.
Our assumption on rates frames the outlook. If cuts materialise, sterling likely remains soft and globally exposed equities on the FTSE 100 remain supported.
Nigel Green is the group CEO and founder of deVere Group, an independent global financial consultancy.
The views, information, or opinions expressed in the interviews in this article are solely those of the author and do not represent the views of Stockhead.
Stockhead does not provide, endorse or otherwise assume responsibility for any financial advice contained in this article.
Originally published as UK rate cuts are looming, FTSE to benefit as pound loses
