The FTSE 100 rose on Wednesday morning as an unexpected drop in UK core inflation raised hopes that tomorrow’s anticipated interest-rate hike by the Bank of England would be its last in the current cycle.
Housebuilders and real estate stocks rose strongly on the news, with higher rates having hammered bottom lines and property valuations over the past year. Shortly after the open, London’s benchmark index was up 0.5% at 7,701.
FOMC and BoE in focus
The Bank of England meets on Thursday and is widely expected to hike interest rates by a further 25 basis points to 5.5%, but a downside surprise in UK inflation data for August could prevent policymakers from further tightening beyond September.
The year-on-year change in the consumer price index eased to 6.7% last month, from 6.8% in July and surprising economists who had forecast a slight tick-up to 7.1%. Core inflation dropped to 6.2% in August, from 6.9% the month before – this is still more than three times the BoE’s target but a strong step in the right direction and well below the 6.8% reading expected.
“What [the data] does support is the recent market pricing favouring a one-and-done hike in September and no more thereafter,” said Neil Wilson, analyst at Markets.com. “With the Fed about to pause and the ECB signalling it thinks it is done with hiking, the BoE won’t want to be the outlier.”
Meanwhile, the Federal Open Market Committee meeting kicked off on Tuesday afternoon and will conclude later today – though the policy decision and statement will not come out before the closing bell in London.
“A pause is still widely expected but it’s going to be the accompanying commentary which will set the tone, with investors on tenterhooks about what the Fed’s next steps will be and when