UK Shares Gain Slightly After Softer April Inflation Data Reassures Investors
Market Reaction and Economic Context
May 20 (Reuters) - UK shares rose marginally on Wednesday after softer-than-expected April inflation offered relief to investors, though sceptics warned the reprieve would be temporary.
The blue-chip FTSE 100 index gained 0.13% as of 10:40 am GMT, while the midcap FTSE 250 climbed 0.29%.
Inflation Data and Analyst Perspectives
• Consumer prices in April rose by an annual rate of 2.8%, compared with March's figures of 3.3% and expectations of 3.0%.
• That prompted some analysts to question the need for rapid rate hikes by the Bank of England, especially as data released on Tuesday also showed the unemployment rate ticking up.
Bank of England Policy Outlook
• "We continue to think markets are overestimating the Bank of England's willingness to tighten policy," said James Smith, developed markets economist, UK, at ING.
• On Monday, the International Monetary Fund had also said that the central bank may not need to raise rates to get inflation down to its target.
Potential Risks Ahead
• Still, others warned that inflation may tick up in the coming months as the impact of higher oil prices due to disruption in the Strait of Hormuz flows through.
• "Some people might be scratching their heads that the headline inflation figure for April came in at just 2.8%. But this bright spot is set to be relegated to the past in the months to come," said Danni Hewson, head of financial analysis at AJ Bell.
Sector Performance and Notable Movers
Aerospace and Defence
• Aerospace and defence stocks rose 1.6%, thanks to a 3.2% gain in shares of defence contractor Babcock International Group after Peel Hunt upgraded the stock to "buy" from "add".
Retail Sector
• Retailer Marks & Spencer rose 4.2% and was the biggest gainer on the FTSE 100 after forecasting it will return to profit growth this year.
Political Backdrop
Uncertainty Around Leadership
• Investors are also contending with a noisy political backdrop, as questions about Prime Minister Keir Starmer's future persist.
Reporting Credits
(Reporting by Niket Nishant in Bengaluru; Editing by Vijay Kishore)
