UK shares rise as softer inflation tempers some rate hike bets
Market Overview and Key Drivers
FTSE Performance and Inflation Data
May 20 (Reuters) - UK shares closed higher on Wednesday after a softer-than-expected April inflation reading tempered some interest-rate-hike bets, while a drop in crude oil prices and stabilizing government bond yields also offered some respite.
The blue-chip FTSE 100 index closed 1% higher at 10,432.3 points, while the midcap FTSE 250 climbed 1.2%. Both indexes ended at their highest closing levels in around two weeks.
Inflation and Analyst Reactions
• 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 following Tuesday's data that showed the unemployment rate ticking up.
Expert Commentary
• "Inflation coming in softer than expected will further take the pressure off the Bank of England to hike rates over the next few meetings. But we are most certainly not out of the woods in terms of the impact of the Iran conflict on inflation," said Luke Bartholomew, deputy chief economist at Aberdeen.
• BoE Governor Andrew Bailey said a rise in market interest rates since the start of the Iran war has given the central bank more time to assess the economic effects of the conflict.
Sector Highlights and Market Sentiment
Global Factors and Oil Prices
• Risk sentiment also got a boost worldwide as oil prices fell after U.S. President Donald Trump said that negotiations with Iran were in the final stages, with other details.
Industry Movers
• Aerospace and defence stocks rose 3.7%, thanks to a 5.3% gain in shares of defence contractor Babcock International Group after Peel Hunt upgraded the stock to "buy" from "add".
• Heavyweight banks climbed 2.8%, with Barclays and Lloyds up more than 3% each.
• Retailer Marks & Spencer rose 6.6% and was the biggest gainer on the FTSE 100 after forecasting it will return to profit growth this year.
Bond Yields and Political Backdrop
• Government bond yields around the world also paused their rise on Wednesday, spurring risk sentiment worldwide.
• Investors are contending with a noisy political backdrop as questions about Prime Minister Keir Starmer's future persist.
Reporting Credits
(Reporting by Niket Nishant and Shashwat Chauhan in Bengaluru; Editing by Vijay Kishore)
