The FTSE 100 experienced a significant surge following Rishi Sunak’s achievement of his goal to reduce inflation by half by year-end, fueling expectations for a reduction in interest rates by summer.
This uplift in the UK’s leading stock index, which saw a 1.1% increase as the markets opened, came in response to the fall in price growth to its lowest in two years.
October’s consumer prices index (CPI) fell to 4.6%, down from 6.7% the previous month, as reported by the Office for National Statistics (ONS). This decrease was largely attributed to a deceleration in the rising costs of gas and electricity.
Earlier in the year, the Prime Minister had committed to bringing inflation down to below 5.4% by the end of 2023.
Mr. Sunak attributed the decrease in inflation to the “hard decisions and fiscal discipline” implemented by his government, emphasizing that tackling inflation had been their top priority.
This reduction in inflation positively impacted stocks that are sensitive to interest rate changes. Homebuilders experienced the most significant growth, with a 2% increase, while the banking sector saw gains of up to 1.6%.
Money markets are now forecasting a reduction in interest rates by at least a quarter of a percentage point by June.
Samuel Tombs, the chief UK economist at Pantheon Macroeconomics, suggested an even more optimistic outlook. He predicted that the decline in inflation could enable the Bank of England to lower interest rates from 5.25% to 5% by May of the following year.
