K stock markets have enjoyed a rally after a bigger-than-expected fall in inflation offered hope for the squeezed mortgage market.
London’s FTSE 100 jumped by more than 2% during the day, while the more UK-focused FTSE 250 surged by more than 3.7%.
It followed official figures showing the UK’s Consumer Prices Index (CPI) inflation fell to 7.9% in June, down from 8.7% in May and the lowest rate since March last year.
Most economists had expected the figure to fall to 8.2% last month.
The data prompted financial markets to trim their bets on where UK interest rates will peak, amid hopes that the Bank of England will not have to hike rates as far to keep inflation under control.
The FTSE 100 is enjoying its best day of the year so far, led by housebuilders and other real estate stocks
The FTSE 100 was boosted by big gains for housebuilders such as Persimmon, Barratt Developments and Taylor Wimpey who have raised concerns about the impact of rate hikes on mortgages and the housing market.
Insurers and other property stocks also helped lift the UK’s top share index. It closed 134.51 points higher, or 1.8%, at 7,588.2.
Chris Beauchamp, chief market analyst for online trading platform IG, said: “UK investors have watched enviously as US markets recover as CPI on the far side of the Atlantic dropped, but today they have had plenty of reason to celebrate following the CPI print this morning.
“The FTSE 100 is enjoying its best day of the year so far, led by housebuilders and other real estate stocks.
“After weeks of declines, it looks like the FTSE 100 has found a low.”
It was not such a buoyant session for other top European stock markets. France’s Cac 40 edged up by 0.11%, while Germany’s Dax slipped by just 0.1% on Wednesday.
US stock markets opened firmly in the green, with both the S&P 500 and Dow Jones up by about 0.48% by the time European markets closed.
The pound, however, dropped sharply against the US dollar after rallying earlier in the month and following the inflation surprise. It was down 1% to 1.29 US dollars when markets closed. Sterling also dropped by 0.6% against the euro to 1.153.
Brent crude oil jumped by 0.54% to 80.06 US dollars per barrel.
In company news, shares in Hargreaves Lansdown saw a boost after the investment platform recorded an uplift in new business over the latest quarter with clients looking to seal deals before the end of the tax year.
It also saw its assets under administrations edge up over the quarter, despite suffering a fall in the volume of share deals. Its share price was up by 8.8% at close.
Shares in Severn Trent also lifted after the water supplier for the Midlands and Wales told investors that water levels were ahead of where they were a year ago.
The firm said it was well-positioned to deal with the hotter and drier summer months, and stood by its full-year profit guidance. Its shares closed 3.5% higher.
The biggest risers on the FTSE 100 were Hargreaves Lansdown, up 73.8p to 914p, Persimmon, up 90.5p to 1,182p, Land Securities Group, up 47p to 661.4p, Segro, up 52.4p to 795.6p, and Barratt Developments, up 29.7p to 454p.
The biggest fallers on the FTSE 100 were WPP, down 13.8p to 860p, Antofagasta, down 20.5p to 1,486.5p, Weir Group, down 21p to 1,799.5p, Ocado Group, down 7.8p to 683.8p, and Prudential, down 11p to 1,064p.