The FTSE 100 surged on Wednesday as investors cheered lower-than-expected inflation data that signalled more Bank of England interest rate cuts in early 2026.
UK CPI inflation came in at 3.2% for the year to November – a significant fall from last month’s reading of 3.6% and well below the 3.5% forecast for November by economists.
The reading is a big win for all involved. Equity bulls jumped into UK stocks on the hopes of more interest rate cuts next year, and the Bank of England’s life has been a whole lot easier. A rate cut tomorrow is a near certainty.
But the question investors will now have is how many rate cuts they can expect in early 2026. Although the inflation is still above the BoE’s 2% target, a trend lower should suffice to justify borrowing costs further in 2026.
London’s leading index jumped 1.7% on the news, hitting the highest levels since early November. 10,000 before the end of the year now looks achievable.
“A lower-than-expected reading of inflation has reinforced expectations for a Bank of England rate cut tomorrow and helped the FTSE 100 to post solid gains on Wednesday morning,” says AJ Bell head of markets Dan Coatsworth.
“The inflation data saw a drop in sterling which helps flatter the dominant overseas earnings in the UK’s flagship index.”
As you’d expect, the FTSE 100’s gains were broad on Wednesday with most shares trading higher.
There were notable gains for cyclical sectors, including banks and miners among the best performers on the session. HSBC was among the top risers, adding more than 4%.
Housebuilders enjoyed a strong session on hopes of further interest rate cuts next year. Barratt Redrow rose 2.9% while Persimmon added 2.6%.
The sector is in desperate need of a boost, and investors disappointed with the government’s lack of action on construction in the budget may find some solace in lower inflation data.
Bunzl was the FTSE 100’s top faller after releasing a disappointing trading update. Shares were down over 2%.