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FTSE 100 bounces back as UK inflation provides positive surprise

The FTSE 100 largely reversed yesterday’s losses on Wednesday after UK CPI inflation came in cooler than expected.

UK CPI inflation for January was flat at 4% compared to consensus expectations of 4.2%. Although inflation remains well above the Bank of England’s target of 2%, there is a clear trend of UK inflation easing which will support rate cuts later this year.

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The FTSE 100 was up 0.95% at the time of writing reversing much of Tuesday’s losses caused by an upside surprise in US inflation.

“The FTSE 100 was up in early trading as yesterday’s negative inflation shock in the US was followed by a surprise of a more positive variety as UK inflation came in flat and below expectations,” said AJ Bell investment director Russ Mould.

“This raises a prospect which would have felt unlikely a matter of weeks ago of the Bank of England cutting its own rates before the US, and the subsequent drop in the pound has helped the big multinational names in the FTSE 100. The relative value of their overseas earnings is boosted by weaker sterling.

“For global markets, the US reading is significant and suggests the battle against inflation is far from over.”

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The lower-than-expected UK inflation reading helped support interest rate-sensitive sectors such as housebuilders and retailers.

Persimmon gained 4% as Taylor Wimpey ticked 2.6% higher. Ocado added 2% and Frasers Group was 2.3% higher.

Coca-Cola HBC was the top riser, gaining over 7%, after releasing bumper 2023 results. The company hiked its dividend by 19%.

United Utilities and Severn Trent released investors updates on Wednesday which were met with tepid market reactions. Given the cloudy environment for water companies after the sewage scandals, flat to minorly down share prices may have been the best investors could expect.

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