U.K. stocks rise as disappointing inflation eases pressure on BOE to hike

U.K. stocks rose for a second straight day on Wednesday, moving higher after a disappointing reading on Britains inflation reduced pressure on the Bank of England to raise interest rates next month.

Miners were among biggest advancers as metals prices rallied on concerns further sanctions against Russia could dent supply.

What are markets doing?

The FTSE 100 index
UKX, +1.26%
climbed 1.3% to end at 7,317.34, logging its highest close since early February, according to FactSet data.

The pound
GBPUSD, -0.5738%
dropped to $1.4220, down from $1.4290 late Tuesday in New York and falling from an intraday high of $1.4315. Sterling briefly dipped below $1.42 during Wednesdays session to an intraday low of $1.4173.

A weaker pound tends to prop up the British blue-chip index as its multinational companies generate most of their sales in foreign currencies.

What is driving the market?

The moves in both the pound and the FTSE came after data showed U.K. inflation fell to 2.5% in March from 2.7% in February. Analysts had expected consumer prices to have risen 2.7%.

The weaker reading is good news for households, but could give BOE Gov. Mark Carney a headache ahead of next months policy-setting meeting. The market is still pricing in an interest-rate rise, but the fall in inflation could make an increase less of a done deal.

Sterling earlier this week jumped above $1.43 and reached its highest level since the Brexit vote in June 2016 on rising expectations the U.K. central bank will tighten policy. The pound, however, already started to unravel on Tuesday after data showed February wages including bonuses rose less than some had expected.

The gains on the U.K. stock market on Wednesday were also propelled by corporate news. Miners were among top performers, after Rio Tinto PLC
RIO, +5.35%
RIO, +4.42%
RIO, +1.11%
said quarterly iron-ore exports from its Australian mines rose 5%. Shares of the mining major ended up 5.4%, also boosted by gains in metals prices.

What are strategists saying?

The FTSE 100 has gone from the back of the pack to the market leader, as a sharp deterioration in U.K. inflation has driven the pound sharply lower, said Joshua Mahony, market analyst at IG, in a note.

The outperformance of the pound has certainly been one of the main determinants of FTSE 100 underperformance among European bourses, yet with GBPUSD falling almost 100 points in the wake of todays inflation figures, we are finally seeing the FTSE benefit from the pounds performance, he added.

Read: Embrace these 5 unloved investments, says Morningstar

What stocks are in focus?

Among miners on the rise, shares of Glencore PLC
GLEN, +7.65%
GLCNF, +7.07%
added 7.7%, Anglo American PLC
AAL, +6.15%
climbed 6.2% and BHP Billiton PLC
BLT, +5.50%
BHP, +3.70%
BHP, +0.47%
put on 5.5%.

Mediclinic International PLC
MDC, +9.15%
rallied 9.2% after the health-care company said it expects full-year results marginally ahead of expectations.

Oil companies were also rising, tracking a more-than 2% jump in oil prices that came after a surprise decline in weekly U.S. crude supplies. Shares of BP PLC
BP., +2.60%
BP, +2.40%
climbed 2.6% and Royal Dutch Shell PLC
RDSB, +2.43%
RDS.B, +2.33%
put on 2.4%.

Outside the FTSE 100, CYBG PLC
CYBG, -4.99%
shares slid 5% after the owner of Clydesdale and Yorkshire Bank said it expects to set aside another 拢350 million ($501 million) for legacy claims over mis-sold payment-protection insurance. The increased provisions would bring its capital position below its guidance range.

Intu Properties PLC
INTU, -4.08%
gave up 4.1%, after Hammerson PLC
HMSO, +4.17%
said its abandoning plans to buy theshopping center owner in the face of a weak U.K. retail market. Intu responded by saying Hammersons reasons for dropping the approach were unsatisfactory. Hammerson shares ended up 4.2%.

Related Topics United Kingdom London Stock Exchange London Markets Bank of England Europe European Markets

Quote References UKX +91.29 +1.26% GBPUSD -0.0082 -0.5738% RIO +202.00 +5.35% GLEN +26.60 +7.65% GLCNF +0.35 +7.07% AAL +104.40 +6.15% BLT +79.60 +5.50% BHP +1.73 +3.70% MDC +57.20 +9.15% BP. +12.90 +2.60% BP +1.02 +2.40% RDSB +59.00 +2.43% RDS.B +1.65 +2.33% CYBG -15.20 -4.99% INTU -8.50 -4.08% HMSO +20.60 +4.17% Show all references
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Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

Sara Sjolin

Sara Sjolin is a MarketWatch reporter based in London. Follow her on Twitter @sarasjolin.

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FTSE 100 Index GBP FTSE Indices: UKX 7,317.34 +91.29 (+1.26%)

Volume 0
Open 7,226
High 7,326
Low 7,226
P/E Ratio 0
Div Yield 0
Market Cap N/A

British Pound Tullett Prebon: GBPUSD 1.4208 -0.0082 (-0.5738%)

Volume 0
Open 1.43
High 1.43
Low 1.42
P/E Ratio 0
Div Yield 0
Market Cap N/A

Rio Tinto PLC U.K.: London: RIO 3,977.00p +202.00 (+5.35%)

Volume 7.9M
Open 3,800p
High 3,985p
Low 3,800p
P/E Ratio 10.58
Div Yield 6.51
Market Cap 50.1B

Rio Tinto PLC ADR U.S.: NYSE: RIO $57.16 +2.42 (+4.42%)

Volume 4.1M
Open $56.73
High $57.40
Low $56.64

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