The Bank of England gave the recent UK stock market rally another burst of energy by unveiling a surprise quarter-point cut in interest rates to 5 per cent yesterday.

Hardly anyone in the market expected the Bank to cut rates (all 26 analysts polled by Reuters last week expected no change) and the result was an immediate surge in the FTSE 100 index.

For a while, there was speculation that the European Central Bank might follow the Bank of England's lead and reduce rates in the euro-zone. In the 45 minutes between the two announcements, Footsie reached a peak of 5,644.2, up 97.3.

But the ECB left rates unchanged and that prompted a drift back in the UK market. An early surge in the Dow Jones Industrial Average also petered out. And gilts were not supportive, with traders showing some concern that the Bank of England might be taking risks with inflation; the benchmark 10-year issue fell by around a third of a point.

And if the Bank was hoping that the cut would weaken sterling, easing the pressure on manufacturers, its announcement had only a marginal effect, with the trade-weighted index dropping from 106.8 to 106.5.

All this ensured that Footsie surrendered the bulk of its gains, closing 37.6 higher at 5,584.5. That was still its sixth consecutive gain, during which time the index has risen more than 300 points.

The other indices were also higher. The FTSE 250 gained 60.6 to 6,201.6, the SmallCap 26.1 to 2,772.6 while the Techmark 100 advanced 29.39 to 1,623.11.

Telecoms had a strong session yesterday although the best performer in the FTSE 100 was Telewest, the cable TV group.

There was also a whiff of takeover excitement with Alfred McAlpine the best performer in the FTSE 250 after confirming that George Wimpey was in talks to buy its housebuilding unit. The main weak point was the oils where Shell disappointed the market with its production growth.