UK stocks end slightly higher after inflation data; focus on Fed, BoE meetings

(Reuters) -Britain's FTSE 100 rose on Wednesday as investors weighed the last domestic inflation reading ahead of key central bank meetings in the U.S. and the UK, though Middle East tensions tempered market optimism.

The blue-chip FTSE 100 index ended 0.1% higher, as heavyweight banks recouped lost ground to rise 1.1%.

British inflation slowed in May, as expected by the Bank of England, which is widely predicted to keep interest rates on hold when it meets on Thursday.

"Escalating tensions in the Middle East, and the upward pressure this is putting on oil prices, will only add to the Bank of England's concern about easing rates too quickly," said Zara Nokes, global market analyst at J.P. Morgan Asset Management.

"The Monetary Policy Committee will face a tougher choice when meeting again in August, given the combination of still-sticky inflation and evidence that the labour market is quite clearly cooling."

The conflict between Iran and Israel entered its sixth day, with increasing concerns over direct U.S. military involvement after Iranian Supreme Leader Ayatollah Ali Khamenei rejected U.S. President Donald Trump's demand for unconditional surrender.

Pharmaceutical and biotechnology stocks were under pressure, with GSK and AstraZeneca both down 2.1% and 1.1%, respectively, after Trump said pharma tariffs were coming soon.

The midcap index climbed 0.3%, with shares of ME Group jumping 9% after the vending machines operator confirmed it is evaluating strategic options, including a sale.

Electronics retailer AO World posted record profits in fiscal 2025. Its shares, however, closed 3.6% lower after an initial spike.

Across the Atlantic, the Federal Reserve's policy decision later in the day will be under scrutiny as investors try to gauge expectations for rate cuts.

Other economic data showed that UK house price growth halved in April.

(Reporting by Twesha Dikshit and Shashwat Chauhan; Editing by Shreya Biswas and Ed Osmond)