Stock prices rise as falling inflation raises hopes of cheaper borrowing

Share prices in the UK and around the world rose as markets welcomed signals that the impact of inflation was easing.

UK inflation slowed more than expected to 4.6 percent last month, with the FTSE 100 stock index temporarily rising 85 points, or 1.1 percent, to a one-month high of 7,525. The FTSE 250 index, which is more weighted towards home-grown British companies, rose 253 points to 18,789, up 1.8 percent, reversing losses this year.

The pound fell 0.3 percent against the dollar to $1.246 as traders saw inflation figures, the lowest since 2021, as further evidence the Bank of England is done raising interest rates to curb inflation.

The cost of raising government bonds has also fallen as bond yields, or government bonds – the yield for buyers of British debt – have fallen. The two-year yield fell to 4.53 percent and the longer-dated 10-year yield fell to 4.14 percent, its lowest level in nearly six months.

The fall in UK inflation followed a one-day rise on Wall Street, where investors welcomed US inflation’s fall to 3.2 percent last month. Inflation in Italy and France also slowed last month to annual levels of 1.8 percent and 4.5 percent, respectively, according to published data.

Victoria Scholar, head of investment at Interactive Investor, said: “The Bank of England will be encouraged by lower-than-expected inflation rates at both nominal and core levels, with it becoming increasingly likely that the central bank will raise interest rates by a third of the time “. The line remains unchanged. Time is at his next decision-making meeting.

“In line with these expectations, the pound is under pressure against the US dollar and euro today, with UK 10-year government bond yields falling to their lowest levels since early June. UK housebuilders such as Barratt Developments, Taylor Wimpey and Berkeley Group are also trading sharply higher as UK shares rose and risk appetite increased.

“Fourteen consecutive rate hikes by the central bank ahead of the September holidays continue to weigh on the economy. However, with the Bank of England at or near the peak of its rate hike cycle, some mortgage providers have improved their offerings, with two-year mortgage deals falling below 5 per cent for the first time in five months.”

Shares of real estate and homebuilders rose on expectations that lower interest rates, which many believe could happen as early as May next year, will revive interest in home buying and increase the number of mortgage deals available.

It comes as the UK’s biggest mortgage lenders launched a price war ahead of Christmas, with major banks such as Halifax and HSBC announcing new cuts to fixed-rate mortgage deals.

Suzanne Streeter, an analyst at Hargreaves Lansdown, said: “Investors are encouraged by rising hopes that the fight against inflation is gaining momentum.”

“The UK has finally shaken off its unwanted status as a global inflation anomaly as today’s report shows price growth fell more than expected after a disappointing three months,” said Ben Laidler, investment analyst at trading and investment platform eToro. .

The MSCI World Stock Index, which tracks shares in 49 countries, rose 0.5 percent to its highest level since mid-September after a positive session in Europe and a rally in Asia, helped by a report on economic stimulus in China.