UK FTSE 100 Technical Analysis: Soft UK CPI boosts the stock market, BoE rate cut bets

KEY POINTS:

• The UK CPI data surprised to the downside across the board
• Traders are now betting on two more rate cuts in 2026
• The BoE is expected to cut by 25 bps tomorrow but could sound more dovish
• UK FTSE 100 surged on the soft inflation data as rate cuts boost the stock market

FUNDAMENTAL
OVERVIEW

The UK FTSE 100 surged this
morning following the surprisingly soft UK
CPI data. The Office for National Statistics (ONS) noted that
food and non-alcoholic beverages, and alcohol and tobacco made the largest
downward contributions to the monthly change in both CPIH and CPI annual rates.

Even though food prices are
generally volatile, several BoE members expressed significant concern lately
that persistent food price increases could keep inflation sticky above 2% as
households change their inflation expectations. Therefore, this should be good
news for the central bank ahead of its monetary policy decision tomorrow where
it’s expected to cut the Bank Rate to 3.75%.

Given the soft UK
employment and inflation data this week, the BoE might not only deliver the
rate cut, but also a more dovish tone. The market has been expecting at least
one more rate cut in 2026, but traders are now starting to bet on at least two
more cuts next year.

For the stock market, lower
interest rates and expected subsequent recovery in the economy are bullish drivers
and should support the bullish momentum into new all-time highs, all else being
equal.

UK FTSE 100
TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that FTSE 100 (CFD contract) bounced from a major trendline on November 21 when Fed’s
Williams lift the global risk sentiment by endorsing a rate cut in December. We
had some rangebound price action since the first week of December, but following
the soft UK CPI, the market is now breaking out to the upside.

The natural target for the
buyers will be of course a new all-time high. The sellers, on the other hand,
will wait for the price to reach the all-time high to position for a drop back
into the trendline.

UK FTSE 100 TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME

On the 4 hour chart, we can
see that we had a strong resistance zone around the 9760 level. The price broke
out this morning, and the buyers piled in with more conviction to target new
all-time highs.

The sellers will want to
see the price falling back below the 9760 zone to step back in and position for
a drop into the major trendline.

UK FTSE 100 TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME

On the 1 hour chart, we can
see that the price already reached the upper bound of the average daily range for today. The price
generally consolidates or pulls back in such cases.

If we get a pullback into
the 9760 level, we can expect the buyers to step in with a defined risk below
the zone to position for a rally into a new all-time high.

The sellers, on the other
hand, will look for a break lower to pile in for a drop into the major trendline.

UPCOMING CATALYSTS

Tomorrow we have the BoE monetary policy decision and the US CPI, while on
Friday we conclude the week with the UK Retail Sales data.