London's FTSE 100 logs best month in more than two years

Updates with closing prices

Jan 31 (Reuters) - Britain's benchmark share index closed at a record high on Friday and logged its best month in more than two years, while investors prepared for the Bank of England's rate decision next week.

The blue-chip FTSE 100 .FTSE hit an all-time high of 8,692.84 and closed up 0.3%. It has gained 6.1% so far in January.

Meanwhile, the domestically-focussed mid-cap FTSE 250 .FTMC rose 0.6% and was hovering at a near two-month high. It gained 0.8% this month.

The gains were largely driven by U.S. President Donald Trump's decision to refrain from implementing aggressive tariffs on his first day in office. This unexpected move has calmed the markets, with many analysts suggesting that the tariff threat will serve as a strategic negotiation tool.

British engineering firm Smiths Group's SMIN.L shares surged 10.8% to an all-time high after it said it planned to spin off its Smiths Detection business under pressure from U.S. activist investor Engine Capital.

The aerospace and defence sector .FTNMX502010 rose 1.5% to lead sectoral gainers.

Precious metal miners .FTNMX551030 lost 1.2% after jumping 6.8% in the previous session, as prices of bullion hit an all-time high.

On the economic front, British house prices lost some of their momentum in January, rising by just 0.1%.

Investors increased their bets on the pace of interest rate cuts by the Bank of England this year, fully pricing in the chance of three quarter-point reductions by the end of 2025.

Investors are now watching out for the PMI figures and the BoE's interest rate decision, both due next week.

"With the inflation tiger still proving frustratingly tough to tame and the Bank of England unable to take its foot too far off the brake, mortgage rates look set to stay high through 2025," said Aaron Hussein, global market strategist at J.P. Morgan Asset Management.

Across the Atlantic, sentiment was lifted by an in-line reading of the U.S. personal consumption expenditures price index - the Federal Reserve's favoured inflation gauge - which rose 0.3% in December. Wall St. opened higher. .N

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