UK shares extend rally as oil slides; corporate gains lift midcaps
Market Overview and Key Drivers
May 27 (Reuters) - UK shares closed higher on Wednesday as hopes of a resolution to the Iran war pushed down crude prices and lifted risk appetite, with upbeat updates from Pets at Home and Hollywood Bowl driving gains in the midcap index.
The blue-chip FTSE 100 index rose 0.13% to 10,505.01 points, advancing for the eighth straight session. The midcap FTSE 250 added 0.25%, after hitting its highest in nearly three months during the session.
Defence and Security Sector Performance
• UK's defence stocks rose ahead of the signing of a new UK-Polish defence and security treaty on Wednesday, part of Prime Minister Keir Starmer's efforts to bolster ties with the rest of Europe.
Rolls-Royce and Sub-Index Gains
• Rolls-Royce gained 2.9%, while the defence sub-index added 1.2%.
Monetary Policy and Rate Expectations
• Easing bets of rate hikes in the UK have helped prop up the domestic share rally with the FTSE 100 now within 4% of its late-February record high.
Interest Rate Outlook
• Traders have priced in one quarter-point interest rate increase by the Bank of England before the end of the year with a 50% chance for another similar-sized move.
Consumer and Inflation Trends
• The most up-to-date snapshot of UK consumer behaviour showed British grocery inflation eased to 3.1% in the four weeks to May 17, its slowest rate of increase since December 2024, with the full impact of the Iran conflict yet to reach supermarket prices.
Political Impact on Economic Policy
• "The UK's political situation is likely to keep long-term rates elevated because all potential candidates to lead the Labour Party would likely propose a change in economic policy priorities," said Ryan Sweet, chief global economist at Oxford Economics.
Energy Sector and Oil Prices
• Shell and BP dropped about 2.3% and 2.7%, respectively, tracking a slide in oil prices as traders assessed progress in U.S.-Iran talks.
Corporate Highlights
Hollywood Bowl Performance
Leisure Sector Growth
• Hollywood Bowl jumped nearly 15.4% to the top of the FTSE 250 index after the leisure bowling operator reported higher spend per game in both the UK and Canada, and announced a new £5 million share buyback.
Pets at Home Results
• Pets at Home rose 6.5% after reporting its retail sales returned to growth in the fourth quarter and have accelerated since.
Amazon's UK Investment
• Amazon said it invested over £15 billion in Britain in 2025, keeping it on track for its £40 billion plan through 2027, as it expanded sites, studios and drone delivery trials in its third-largest market globally.
(Reporting by Medha Singh and Niket Nishant in Bengaluru; Editing by Vijay Kishore and Devika Syamnath)
