The FTSE 100 was charging in tomorrow’s Bank of England decision after UK inflation came in lower than estimated casting doubt over whether UK rates would indeed rise to 5.5%.
A UK CPI reading of 6.7% sparked a rally in London’s leading index as investors reacted to a chance the Bank of England sees the lower inflation rate as reason enough to hold off hiking rates – if not tomorrow at subsequent meetings.
Just yesterday there was little doubt UK rates were rising to 5.5% but the FTSE 100 surged 0.8% to 7,721 in afternoon trade as investors priced an upset to prior market consensus.
“UK shares enjoyed a strong start to the day after a surprise fall in UK inflation data. The FTSE 250 index jumped 1.3% to 18,667, led by housebuilders, builders’ merchants and property companies,” said Russ Mould, investment director at AJ Bell.
“Weaker inflation fuels the argument that interest rates no longer need to go up, or at least not by much more. That would be positive for property-related companies as well as retailers because consumers would, in theory, no longer face additional pressures on their finances.
“The FTSE 100 displayed similar trends, with housebuilders and property groups soaring, while the likes of B&M, JD Sports and Next were in demand.
“We could still get another rate rise from the Bank of England tomorrow, but the latest inflation data increases the chance that a further rate hike could be the last in the current cycle.”
As one would expect, housebuilders were leading the FTSE 100’s charge with Taylor Wimpey up 5.4% and Barratt Developments gaining 4%.
M&G was 2% higher after issuing a positive first-half report. Profits soared as the group continued a three-year trend of positive inflows despite challenging macro influences.
Bargain hunters stepped into Kingfisher after a sharp decline yesterday with shares adding around 3%.