What happened
The FTSE 100, the index of the 100 largest companies listed on the London Stock Exchange, rose 0.16 per cent to 10,884.95 in Friday trading, rebounding from a decline the previous day. The mid-cap FTSE 250, which is more focused on domestic UK businesses, slipped slightly.
The main catalyst was the S&P Global UK Services PMI, or purchasing managers index, which rose to 52.1. A PMI is a monthly survey of the managers who buy supplies for thousands of companies; any reading above 50 signals expansion, while below 50 signals contraction. Services make up around four fifths of UK output, so this survey is one of the most timely health checks on the economy.
Mining stocks also rebounded as prices of industrial metals picked up, lifting the heavyweight resources names that carry large weight in the index. Traders remained cautious through the morning, however, ahead of the US jobs report due later in the day, the biggest data event of the week.
The backdrop is increasingly friendly for UK assets. Inflation eased to 2.6 per cent in June, the lowest since March 2025, and the Bank of England held interest rates at 3.75 per cent at its meeting on 30 July, its fifth straight hold this year.
Why it matters
Services are where most British people work, from banks and law firms to restaurants, software companies and hospitals. A services sector that keeps expanding supports employment, wage packets and tax receipts, and it pushes back against fears that the economy is sliding towards recession.
For markets, the combination is attractive: growth that is solid but not overheating, inflation drifting towards the 2 per cent target, and a central bank with room to cut rates later this year. That mix tends to support both shares and government bonds at the same time.
One caveat matters. The FTSE 100 is not a pure bet on Britain: its members earn roughly three quarters of their revenues overseas, so it often moves on global forces such as commodity prices and the strength of the pound. Friday was a case in point, with metals prices doing much of the lifting. The FTSE 250 is the better gauge of domestic conditions, and its small slip shows investors remain slightly more cautious about the home economy.
Explained simply
A PMI is like taking the pulse of thousands of company buying departments: if more firms are ordering supplies than cutting back, the heart of the economy is still beating strongly.
Every month, survey compilers ask purchasing managers simple questions: are your new orders rising or falling, are you hiring, are your costs going up. The answers are compressed into a single number centred on 50. It is crude but fast, arriving weeks before official GDP figures, which is why traders treat it as an early warning system.
A reading of 52.1 does not mean the economy is booming. It means modestly more firms are growing than shrinking, like a pulse that is steady rather than racing. After long stretches of stagnation worries, steady is exactly what investors wanted to see.
The mining rebound works differently. Companies that dig up copper, iron ore and other industrial metals see their shares track the prices of those metals, which rise when the world, and especially China, is expected to build and manufacture more. When metals firm up, a handful of large London-listed miners can move the whole index.
What it means for you
If you have a workplace pension, part of it almost certainly tracks the FTSE 100 or a global index that includes it, so an index near record levels around 10,885 is quietly good news for your retirement pot, even if day-to-day moves of 0.16 per cent are trivial on their own.
Cooling inflation at 2.6 per cent plus decent growth gives the Bank of England room to cut rates gradually rather than in a panic. For mortgage borrowers, that points to slowly improving fixed deals over the coming year. For savers, easy-access rates around 4.5 per cent are likely past their peak, so locking some cash into a fixed-rate bond is worth considering while those rates last.
A growing services sector also matters for job security and pay. Firms that are expanding keep hiring, and with inflation at 2.6 per cent, typical pay rises are once again beating price rises in real terms.
The bigger picture
The FTSE 100 has set repeated records this year, helped by cheap valuations relative to US markets, a stabilising economy and takeover interest in UK companies. The index climbing while inflation falls is the combination policymakers have been waiting years to see.
What happens next depends partly on events abroad: the US jobs data and the Federal Reserve response to it, oil prices tied to the Strait of Hormuz standoff, and the next Bank of England decision in September. A calm autumn on those three fronts would leave UK assets in their strongest position in years.
