By Patrick Munnelly, Market Strategist, Tickmill
On Wednesday, UK stocks experienced a rise in their value following a surprising decline in inflation for the month of August.
This unexpected drop in inflation had a positive impact on market sentiment and raised hopes that the Bank of England (BoE) might be approaching the end of its cycle of interest rate hikes.
The FTSE 100, which includes many exporters, saw its value increase by nearly 1% in value.
In contrast, the British pound weakened by 0.3% against the U.S. dollar, reaching its lowest exchange rate since May.
This currency movement suggests that investors were adjusting their positions in response to the inflation data.
The annual consumer price inflation (CPI) in the UK unexpectedly decreased to 6.7% in August, down from 6.8% in July, according to the released data.
This unexpected decline prompted investors to speculate that the Bank of England might decide to pause its historic series of interest rate hikes as early as Thursday.
It’s worth noting that economists had initially predicted that the CPI would increase to 7.0%, making the actual decrease even more surprising.
UK housebuilders’ index jumps
On the positive side of the ledger, UK housebuilders and property firms experienced a strong surge in their stock prices following the unexpected inflation decline.
The UK housebuilders’ index jumped by as much as 5%, marking its most robust performance since July 19.
All 28 constituents of the FTSE Real Estate index witnessed gains, reflecting the broad positivity within the property sector.
Investors were divided on whether the BoE would maintain steady interest rates or continue its streak of 14 consecutive rate hikes.
While the decrease in inflation was seen as a positive development, analysts remained cautious.
Interactive investor analyst Myron Jobson commented that while prices were moving in the right direction, it might be premature to declare victory over inflation, emphasising the uncertainty in the path to controlling it.
FTSE 100 biggest movers
Taylor Wimpey LON:TW., a prominent UK housebuilder, led the gains with its shares rising by +5%, making it the top performer on both the FTSE 100 and the housing index.
Other major house builders like Bellway LON:BWY, Barratt LON:BDEV, and Persimmon LON:PSN also saw substantial increases of between 4.5% and 5%.
In addition, commercial property firms Segro LON:SGRO and Land Securities LON:LAND experienced notable gains of +4%, positioning them among the top percentage gainers on the FTSE 100.
On the negative side of the largely positive ledger sits Smurfitt Kappa [LON:SKG] sliding over 3% as shareholder concerns regarding the proposed merger with WestRock continue to linger.
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