| Remember July? The pound mounted a rally that took it above $1.31 to levels last seen in the spring of 2022. The FTSE 100 climbed for six-straight days to hit the highest in nine weeks. Then, they both lost momentum fast. What happened? Inflation. Britain's headline inflation rate finally dipped below 8% for the first time in more than a year (mind you, it remains nearly four times as much as the Bank of England's 2% target and is the highest among major developed economies.) It ended up being bad news for the currency, which up until then had been buoyed by bets for interest rates to surge to levels last seen in the late 90s. That's when the Spice Girls and Oasis topped British music charts, Bloomberg reporter Alice Gledhill helpfully notes for those of you so young that you don't remember the heyday of X, aka Twitter. The rationale was that cooler inflation meant fewer rate hikes, which gave investors already nervous about holding the pound an excuse to sell. BOE Governor Andrew Bailey validated that idea on Thursday, when he said in a Bloomberg TV interview he is "much more confident" that price pressures are "on the downslope." Yet simultaneously, the BOE forecasts inflation won't return to target until early 2025 and the economy will barely grow in the next couple of years.  Andrew Bailey Photographer: ANNA GORDON/AFP That has prompted a notable vibe shift in UK equities. Investors have gone from cheering the buybacks announced by big banks on the FTSE 100, to wondering when they stop reaping the benefits of higher rates and start worrying about weaker growth. As my colleague Sofia Horta e Costa observed on Bloomberg's Markets Today blog (elegantly described recently as "the Roman Forum of informed debate"): "We went from an all-news-is-good news mentality in markets, with the FTSE 100 finally gaining some love, to one that questions whether stock valuations are too high and hedging is too low. Has inflation actually peaked and can the global economy avoid a more painful downturn?"
The uncertainty has meant that, to figure out which companies to pour money into, investors are going back to basics and looking at things like cash flow and cost controls, my colleagues Sam Unsted and Francine Lacqua noted on the Markets Today show on Bloomberg TV. One investor is so sure the BOE is done raising rates, they staked £625,000 on it. But for everyone else, the outlook for UK markets is as clear as mud. They — along with Governor Bailey and the rest of the policy committee — may just have to wait for more economic data to figure out their next steps. | 
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