"Labour has been in power for a month and the early signs are that they will be sticking to the script," said Stephen Thornber, a fund manager at Threadneedle Investment Managers. "Financials should continue to gain."
This was the first time the central bank had the authority to change interest rates on its own since the Second World War. Rates were raised by a quarter point to 6.50 per cent, only a month after Chancellor of the Exchequer Gordon Brown increased them, also by a quarter point.
Insurance stocks are expected to lead the way because of a perceived shortage of stock in Norwich Union, which starts trading next Monday.
"Fund managers have to have Norwich," said Simon Smith at Albert E. Sharp. Investors running funds that track the FT-SE indices will have to increase their own weightings in the insurance industry as the sector expands.
On 21 May, Norwich said it would sell shares to investors at a price between 240 and 290p. The IG Index, a financial bookmaker that offers spread betting in the grey market, said it was quoting an 8p spread on Norwich shares, bidding at 332p and offering at 340p.
In a similar situation, the FT-SE 100 rose to a record 4,723.7 on 16 May as investors snapped up bank shares before Halifax, the former building society, became the country's third largest bank.
Cable & Wireless is also likely to prompt continued interest after it announced late on Friday that it had agreed to sell a 5.5 per cent stake in Hong Kong Telecom to the Chinese government for $1.2bn. The sale will give the company the financial muscle to pursue other acquisitions.
British stocks could also take their cue from the US, after the Dow Jones Index rose above 7,400 for the first time. Companies that make a lot of their profits in the US and have a large American shareholder base, like Glaxo Wellcome and British Petroleum, could rise.
Christian Salvesen, Unigate, Severn Trent, Northern Foods and Granada Group are the major companies reporting earnings this week.
Copyright: IOS & Bloomberg