London close: FTSE at fresh four-month high ahead of central bank decisions

London's benchmark FTSE 100 closed with strong gains on Wednesday with investors in an optimistic mood after data showed that UK inflation unexpectedly slowed, as markets awaited central bank meetings at both the Federal Reserve and Bank of England.

Easing consumer price pressures sparked a big rise in property stocks, which have felt the brunt of higher interest rates over the past year, in signs that investors are willing to bet on the BoE avoiding any future hikes beyond September.

By the close, the FTSE 100 was up 1% at 7,737 – a fresh four-month high, having not closed above this level since 23 May.

The year-on-year change in the UK consumer price index (CPI) eased to 6.7% last month, from 6.8% in July and surprising economists who had forecast a slight tick-up to 7.1%. Importantly, core inflation dropped to 6.2% in August, from 6.9% the month before. While this is still more than three times the BoE's target, it's a strong step in the right direction and well below the 6.8% reading expected by analysts.

The BoE's Monetary Policy Committee meeting on Thursday is expected to result in a 25 basis-point hike in interest rates to 5.5%, in what many hope will be the last rate hike in a long time.

"The surprise drop in inflation has [...] solidified expectations that we’re inching towards the end of the tightening cycle," said Victoria Scholar, head of investment at Interactive Investor. "Markets are now pricing in a 45% chance of no change to interest rates on Thursday, a steep increase from 20% on Tuesday. However, it looks like interest rates will remain high for some time, with little chance of a rate cut before the second half of next year.”

Meanwhile, he Federal Open Market Committee meeting is expected to conclude at 1900 BST, with chair Jerome Powell due to give a press conference shortly after . Economists unanimously expect policymakers to leave rates at 5.25-5.50%, but remain on the fence about a potential further rate hike at the next meeting in September.

"While markets do not anticipate a rate hike, attention will be on the guidance regarding future actions, including whether rates have peaked and when they may be cut. The Fed's updated projections, including the 'dot plot' of interest rate projections, will provide insights into these questions," said analysts at ARJ Capital.

Movers of the day

Property stocks were the best performers of the day after the surprise drop in UK inflation. With a surge in mortgage rates and sluggish demand leading to falling profits for housebuilders and valuation declines at real estate groups over recent months, a decline in inflation has raised hopes we may be nearing the trough in the cycle.

Taylor Wimpey, Land Securities, Barratt Developments, United Group and SEGRO were all rising strongly ahead of a Bank of England meeting on Thursday.

Shares in educational publisher Pearson fell after the company announced the retirement of its boss of three years, Andy Bird, who will be replaced by Microsoft executive Omar Abbosh in early 2024. The stock, which dropped as much as 5% earlier on, was down just 1% in afternoon trade.

Global investment manager M&G was in demand after posting stronger-than-expected interim profits. Adjusted operating profits came in at £390m (consensus: £284m) as the firm said it was on track to meet its 2024 operating capital generation target of £2.5bn.

Advertising giant WPP fell sharply on continued negative readacross from sector peer S4 Capital which tanked on Monday following a profit warning. S4 Capital, a competitor to WPP which is run by its former boss Martin Sorrell, said like-for-like revenues were likely to fall this year after slower-than-expected trading over the summer and weak client activity levels.

Oil heavyweights BP and Shell declined as crude prices pulled back after recent gains. Brent was down 0.5% at $93.86 a barrel after surpassing the $95 level on Tuesday.

On the FTSE 250, the standout performer was Elementis which surged 10% as the UK chemicals group rejected a demand by major shareholder Franklin Mutual Advisers to sell the company. Franklin, which holds a 9.8% stake, said in an open letter that the "stagnant" share price was "unacceptable" to shareholders and recent "value-destructive acquisitions" had undermined confidence in management.

Market Movers

FTSE 100 (UKX) 7,736.65 1.00%
FTSE 250 (MCX) 18,710.51 1.54%
techMARK (TASX) 4,408.30 1.42%

FTSE 100 - Risers

Taylor Wimpey (TW.) 121.70p 5.55%
Barratt Developments (BDEV) 465.50p 4.72%
SEGRO (SGRO) 755.20p 4.69%
BT Group (BT.A) 121.40p 4.34%
Kingfisher (KGF) 215.70p 4.30%
Croda International (CRDA) 5,056.00p 4.25%
Land Securities Group (LAND) 606.40p 4.05%
NATWEST GROUP (NWG) 241.40p 4.01%
Lloyds Banking Group (LLOY) 44.62p 4.00%
B&M European Value Retail S.A. (DI) (BME) 579.00p 3.99%

FTSE 100 - Fallers

Smurfit Kappa Group (CDI) (SKG) 2,786.00p -3.93%
WPP (WPP) 750.00p -1.96%
Melrose Industries (MRO) 486.10p -1.78%
Centrica (CNA) 169.55p -1.71%
3i Group (III) 2,054.00p -1.49%
BAE Systems (BA.) 1,045.00p -1.32%
Burberry Group (BRBY) 2,041.00p -1.16%
Pearson (PSON) 875.00p -1.02%
Rolls-Royce Holdings (RR.) 223.70p -1.02%
Tesco (TSCO) 270.50p -0.95%

FTSE 250 - Risers

Elementis (ELM) 123.00p 10.22%
Bytes Technology Group (BYIT) 503.00p 6.30%
Mobico Group (MCG) 88.60p 6.11%
Crest Nicholson Holdings (CRST) 190.80p 5.82%
Persimmon (PSN) 1,100.00p 5.11%
Supermarket Income Reit (SUPR) 78.80p 5.07%
Great Portland Estates (GPE) 423.40p 5.06%
Bellway (BWY) 2,268.00p 5.00%
Hammerson (HMSO) 25.02p 4.86%
Tritax Big Box Reit (BBOX) 144.60p 4.78%

FTSE 250 - Fallers

Drax Group (DRX) 505.20p -2.81%
Dunelm Group (DNLM) 1,060.00p -2.12%
Just Group (JUST) 72.50p -1.63%
Bank of Georgia Group (BGEO) 3,680.00p -1.34%
C&C Group (CDI) (CCR) 137.40p -1.29%
Hiscox Limited (DI) (HSX) 1,033.00p -1.24%
Direct Line Insurance Group (DLG) 176.70p -1.12%
Babcock International Group (BAB) 379.00p -1.10%
Spirent Communications (SPT) 139.60p -0.85%
Discoverie Group (DSCV) 705.00p -0.70%