UK Stocks Get Boost from Below-Target Inflation, Raising Rate Cut Expectations
UK stocks received a significant boost while the pound weakened against the US dollar following the release of official figures showing a drop in inflation to its lowest level since 2021 last month. The FTSE 100 saw a notable increase on Wednesday, with housebuilders leading the way as expectations for an interest rate cut next month grew stronger.
The blue-chip index closed 79.79 points higher, or 0.97%, at 8,329.07. Data from the Office for National Statistics revealed that the UK Consumer Prices Index (CPI) inflation fell to 1.7% in September, down from 2.2% in August, falling below the Bank of England’s 2% target level and coming in lower than expected.
Analysts had anticipated a reading of 1.9% for the month. Economists highlighted that the Bank of England’s policymakers would be closely monitoring the shift in service sector inflation last month, with James Smith, an economist for ING, noting the significance of this development.
Smith stated, “UK services inflation has fallen below 5% for the first time since May 2022, and that’s potentially big news for the Bank of England.” He elaborated on the importance of service sector price trends as a key factor in the Bank’s decision-making process, reflecting domestic economic conditions such as wage growth.
Throughout the day, the pound steadily weakened against the US dollar as traders increasingly factored in the likelihood of a UK interest rate cut. Sterling was around 0.5% lower against the US dollar, reaching 1.3, marking the lowest level in nearly two months. The pound also depreciated approximately 0.4% against the euro, reaching 1.2.
Meanwhile, other equity markets in Europe experienced a weaker day of trading, with Germany’s DAX down by 0.18% and France’s CAC 40 lowering by 0.4% at close. In the US, the S&P 500 rose by about 0.2%, and the Dow Jones climbed by 0.4% by the time European markets closed. The price of Brent crude oil also saw a decline of around 1%, reaching 73.5 US dollars per barrel.
In terms of company news, Tate & Lyle’s shares surged following reports that US-based private equity firm Advent International was preparing to make an offer to acquire the sweetener maker. Shares in Tate & Lyle rose by 8.3% amid speculations that the potential offer could exceed the company’s market value of £2.8 billion.
Additionally, Whitbread’s shares rose after the company announced intensified cost-saving efforts and reported a 22% decrease in pre-tax profits over the first half of the year. The hotel and pub group mentioned improved trading conditions in recent weeks, with bookings picking up in October and November.
Whitbread stated that recent cost-saving measures would enhance profits and generate higher returns for shareholders by 2030. Its share price closed 6.1% higher. The top gainers on the FTSE 100 included Whitbread, Barratt Redrow, Entain, Severn Trent, and Endeavour Mining, while the biggest fallers were Rentokil, Admiral Group, Informa, Beazley, and Sainsbury’s.