UK stocks boosted as below-target inflation builds rate cut expectations
The FTSE 100 moved 79.79 points higher, or 0.97%, to close at 8,329.07.
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UK stocks enjoyed a boost while the pound weakened to a nearly two-month low against the US dollar after official figures showed inflation fell to its lowest level since 2021 last month.
The FTSE 100 leapt higher on Wednesday with housebuilders among the biggest risers, as expectations of an interest rate cut next month increased.
The blue-chip index moved 79.79 points higher, or 0.97%, to close at 8,329.07.
Data from the Office for National Statistics showed UK Consumer Prices Index (CPI) inflation fell to 1.7% in September, down from 2.2% in August.
This was below the Bank of England’s 2% target level and lower than expected, with analysts having predicted a reading of 1.9% for the month.
UK services inflation has fallen below 5% for the first time since May 2022 and that’s potentially big news for the Bank of England
Experts also said that the Bank’s policymakers will have been keeping a close eye on the change to service sector inflation last month.
James Smith, developed markets economist for ING, said: “UK services inflation has fallen below 5% for the first time since May 2022 and that’s potentially big news for the Bank of England.
“Remember this is, by some distance, the most important input into the Bank’s decision-making process, as it tries to gauge the level of inflation ‘persistence’ in the economy.
“Service sector price trends are slower moving and tend to be more reflective of domestic economic conditions, like wage growth.”
The pound weakened throughout the day as traders increasingly factored in a potential cut to UK interest rates.
Sterling was about 0.5% lower against the US dollar, at 1.3, the lowest level in nearly two months. The pound was also down about 0.4% against the euro at 1.2.
It was a weaker day of trading for equity markets elsewhere in Europe. Germany’s Dax dipped 0.18% and France’s Cac 40 was 0.4% lower at close.
In the US, the S&P 500 was up about 0.2%, and Dow Jones climbing 0.4% by the time European markets closed.
The price of Brent crude oil declined around 1% to 73.5 US dollars per barrel.
In company news, shares in Tate & Lyle jumped amid reports that US-based private equity firm Advent International was preparing to make an offer to buy the sweetener maker.
An offer from Advent, which has not yet been made, could exceed Tate & Lyle’s market value of £2.8 billion, according to reporting in the Financial Times.
Shares in Tate & Lyle jumped in the afternoon following the reports that bid preparations are in the early stages, and closed 8.3% higher.
Shares in Whitbread also rose on Wednesday after the Premier Inn owner said it had ramped up cost-saving efforts as it reported a 22% slump in pre-tax profits over the first half of the year.
The hotel and pub group said trading had improved in more recent weeks, with bookings picking up in October and into November.
The company said recent moves to make savings would help improve profits and deliver more returns to shareholders by 2030. Its share price closed 6.1% higher.
The biggest risers on the FTSE 100 were Whitbread, up 186p to 3,258p, Barratt Redrow, up 22p to 494p, Entain, up 31p to 712p, Severn Trent, up 118p to 2,740p, and Endeavour Mining, up 67p to 1,809p.
The biggest fallers on the FTSE 100 were Rentokil, down 8.9p to 341.1p, Admiral Group, down 62p to 2,714p, Informa, down 17.8p to 809.2p, Beazley, down 10.5p to 791.5p, and Sainsbury’s, down 2.6p to 274.6p.