he surprise drop in inflation in August gave a boost to the country’s pressured housebuilders on Wednesday as hopes rose that the Bank of England’s rate-hiking cycle might finally be coming to a close.
House-building investors seemed keen on the news, despite separate figures from the Office for National Statistics (ONS) which showed that the growth in house prices slowed to just 0.6% in July when compared to a year earlier.
It pushed Barratt Developments and Taylor Wimpey to the top of London’s FTSE 100 index on Wednesday. The FTSE rose 71.45 points, or 0.9%, to 7,731.65 by the end of the day.
High inflation over the last couple of years has driven the Bank of England to hike interest rates in order to get living costs under control.
While it might be a blip, the morning’s surprise UK CPI reading added to the more positive tone for the day, giving UK-focused sectors a chance to make real progress
But that makes it more expensive for potential house buyers to borrow money, so it has hurt demand for the homes that companies build.
The lower-than-expected inflation in August – 6.7% rather than 7.1% – will take pressure off the Bank to keep raising rates.
Meanwhile, oil prices, which had added to inflation in August, fell back from recent highs on Wednesday, hitting around 94.20 dollars per barrel around the time markets closed.
“The steady beat of rising oil prices has been interrupted today, providing stocks around the globe with some much-needed breathing space,” said Chris Beauchamp, chief market analyst at online trading platform IG.
“The relentless rise in oil has reignited concerns that inflation will make a comeback this year, and this has unnerved global equities.
“While it might be a blip, the morning’s surprise UK CPI reading added to the more positive tone for the day, giving UK-focused sectors a chance to make real progress.”
In Germany, the Dax closed up 0.8% while France’s Cac 40 gained 0.7%. Shortly after markets closed in London, New York’s S&P 500 was trading up 0.2% and the Dow Jones was 0.6% higher.
In company news, bowling company Ten Entertainment said that its pre-tax profits had risen 0.6% to £15.8 million in the six months to early July after an “excellent” summer.
Despite this, shares in the company dipped 3.2% during the day.
Elsewhere, Finsbury Food Group said that it plans to be taken private in a £143 million deal which values each share at 110p.
Shares in the business, which supplies cakes and other baked goods to supermarkets, soared almost 24%, closing at 110.06p, just above the bidding price.
The biggest risers on the FTSE 100 were Taylor Wimpey, up 6.4p to 121.7p, Barratt Developments, up 21p to 465.5p, BT, up 5.05p to 121.4p, Kingfisher, up 8.9p to 215.7p, and Croda, up 206p to 5,056p.
The biggest fallers on the FTSE 100 were Smurfit Kappa, down 114p to 2,786p, WPP, down 15p to 750p, Melrose Industries, down 8.9p to 486p, Centrica, down 2.95p to 169.55p, and 3i Group, down 31p to 2,054p.