UK’s FTSE 100 rose on Wednesday as British banks gained after successfully clearing the Bank of England’s stress test and higher metal prices lifted mining stocks on signs of cooling U.S. inflation.
The blue-chip FTSE 100 gained 1.8%, recording its best day in over eight months. The more domestically-focused FTSE 250 midcap index added 2.4%.
U.S. consumer prices rose modestly in June and registered their smallest annual increase in more than two years as inflation continued to subside, lifting hopes for a less hawkish monetary policy from the Federal reserve and the Bank of England.
British government bond yields fell to their lowest in around a week as the inflation data prompted investors to trim their expectations for Bank of England interest rate rises.
“The talk of inflation getting completely out of hand in the UK maybe a little overdone,” said James Baxter, founder at Tideway Wealth.
“The strength of the pound will help because inputs are getting cheaper and in sterling terms energy prices are falling. So at some point it is quite likely we might get a shock on the downside in UK inflation.”
Miners, oil stocks support FTSE 100, strong pound limits gains
Money markets now see a 58% chance of the BoE hiking rates by 50 basis points, down from around 80% a day earlier.
Industrial metal miners led gains on the street, up 4.4% as prices of most base metals rose on a softer dollar.
The BoE said its annual stress test of eight major lenders showed that each could cope with rising interest rates in a stressed environment, and none would need to submit a revised capital plan. UK banks rose 2.8%.
J D Wetherspoon jumped 10.3% after the pub group forecast its full-year profit to be in line with market estimates, betting on strong demand and a slight easing in energy costs.
International Consolidated Airlines Group S.A. fell 2.3% after Deutsche Bank downgraded the British Airways owner’s stock to “hold” from “buy”.
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