Aided by the news that inflation rose less than expected in July, the FTSE 100 gained on Wednesday in a relatively broad rally led by Entain and the housebuilders.
After the Bank of England cut rates to 5%, investors were eager for hints of when they would cut again. Although inflation rose to 2.2% from 2% in the month, the increase was less than economists forecast, increasing the chances the BoE will reduce borrowing costs again before long.
Lower services inflation and falling food costs contributed significantly to the lower-than-expected inflation read, while energy prices were the main driver of the overall increase.
“Today, markets had a keen interest in services inflation – after two consecutive months of hotter-than-expected readings at 5.7%, the hawkish Bank of England committee members, who voted to hold, highlighted this as a critical factor, making it a key market signal. Today’s 5.2% print vs 5.5% expected print validates the more dovish committee members and potentially leaving room for not just one more cut this year but two,” said Pierre Roke, Associate at Validus Risk Management.
The prospect of two more interest rate cuts in 2024 fired up the UK equity bull, sending the FTSE 100 0.2% higher in midday trade.
“A lower-than-expected jump in UK inflation has boosted market expectation that the Bank of England could deliver another rate cut next month,” said AJ Bell head of financial analysis Danni Hewson.
Housebuilders were big beneficiaries of hopes around interest rates, with Persimmon, Barratt Developments and Taylor Wimpey among the top risers.
Entain, up 5%, was the top riser after peer Flutter released an upbeat Q2 update demonstrating growth in the US, where Entain has a growing presence.
Consumer-focused shares were also well bid after inflation data showed easing pressures. JD Sports was 1.9% higher, and Marks & Spencer rose 1.5%.
The gains in London eased shortly after US inflation data showed that prices rose slightly more than expected month over month.