London stocks advanced on Wednesday as consumer price inflation in the UK rose less than expected in July, strengthening bets that the Bank of England will cut interest rates in the next policy meeting.
The bluechip FTSE 100 climbed 0.5% by 0710 GMT, hitting a fresh two-week high. The midcap FTSE 250 index was also 0.5% higher.
All sub-sectors of the London market gained, except the industrial metal miners that slipped nearly 1% as base metals were under pressure after a bigger-than-expected drop in Chinese lending worsened sentiment.
British consumer price inflation rose to 2.2% after two months at the BoE’s 2% target, a slightly smaller increase than economists expected, while the closely watched services inflation slowed sharply.
Economists polled by Reuters had forecast the annual headline CPI rate would rise to 2.3%.
“Overall, year-on-year inflation was still up a little last month, but that was a known effect of historic energy prices. The good news is that it came in below expectations, driven by a bigger-than-expected fall in services inflation in July,” said Neil Birrell, CIO at Premier Miton Investors.
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“That gives hope that the BoE can continue to ease policy even in the face of other strong data in the jobs market.”
The pound slid against the U.S. dollar and the money markets raised their bets of BoE cutting rates next month. They now see a 47% chance of a 25-basis-point rate cut, up from a 36% possibility on Tuesday.
Among stocks, Aviva edged 0.3% higher after the British insurer posted a better-than-expected 14% increase in first-half operating profit, helped by a rise in general insurance premiums in Britain and Ireland.
Flutter jumped around 13% and was set for its best day in eight months as the world’s largest online betting company raised its full-year outlook after a much better-than-expected second quarter.
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