British Stocks Advance After Inflation Surprise

British Stocks Surge Following December Inflation Slowdown

By Shashwat Chauhan

(Reuters) - British equities jumped on Wednesday, with the economically-sensitive midcap index rising more than 1%, after data showed British inflation unexpectedly slowed in December and core measures of price growth fell more sharply.

The blue-chip FTSE 100 added 0.7% as of 0842 GMT, outpacing European peers, while the FTSE 250 midcap index jumped 1.5%.

The annual rate of inflation eased to 2.5% in December from 2.6% in November, while core inflation, which excludes energy, food, alcohol and tobacco prices, fell to 3.2% from 3.5%.

"The Bank of England will likely feel emboldened to continue its easing cycle in February. And rate cut expectations further out should ease on the back of today's data," said Sanjay Raja, Deutsche Bank's chief UK economist.

Traders currently see a more than 82% of the BoE cutting interest rates in February, and about 50 basis points of easing by the end of the year, as per LSEG data.

British government bond yields, meanwhile, moved away from multi-decade highs. The yield on the 30-year gilt, which stood at its highest since 1998, eased to 5.42%.

Utilities, often traded as a bond proxy owing to their steady income regardless of the economic situation, were up 1.5%.

Rate-sensitive homebuilders led gains among the major FTSE sectors, jumping 4%. Real estate advanced 2.2%, while real estate investment trusts gained 2.4%.

British banks such as Standard Chartered, Barclays and NatWest were up more than 1% each.

UK equities have come under pressure in recent days as investors fret over the likelihood of fewer rate cuts by the U.S. Federal Reserve and inflationary policies under President-elect Donald Trump's administration.

Among individual stocks, Currys surged 11% after the electricals retailer raised its annual profit outlook after reporting a 2% rise in underlying sales for the Christmas trading period.

(Reporting by Shashwat Chauhan in Bengaluru; Editing by Varun H K)