London midday: Stocks rally as UK inflation returns in November

London stocks jumped as UK inflation returned in November with a 0.1% rise compared to a year ago.

The increase in consumer prices was as expected by analysts and followed a 0.1% decline in October.

The Office for National Statistics said the prices of food and motor fuels continued to fall on the year while rents, restaurant and hotel bills were rising. On month-on-month comparison, the consumer price index came in at 0.0% in November, better than the 0.1% drop that was forecast but worse than the previous month's 0.1% gain, as prices of transport costs, alcohol and tobacco slid.

Howard Archer, chief UK and European economist at IHS Global Insight, said he saw CPI reaching 1% in the third quarter of 2016 before rising to 1.5% by end of 2016 and 2% around mid-2017.

"We maintain the view that the Bank of England is more likely than not to raise interest rates by mid-2016," he said, predicting a move in May.

"However, we doubt interest rates will end 2016 any higher than 1% - and it is far from inconceivable that the Bank of England may only raise interest rates once to 0.75% during next year.”

The Bank of England is targeting 2% inflation.

The US also sees the release of inflation figures at 1330 GMT, which will be under careful scrutiny ahead of Wednesday’s Federal Reserve interest rate decision. The Fed, which is targeting 2% inflation, is widely expected to raise interest rates by 25 basis points.

US CPI is expected to 0.5% in November from a year ago following a 0.2% increase a month earlier. Month-on-month CPI is forecast to come in at 0% in November after a 0.2% rise in October.

Meanwhile, the ONS revealed UK house prices rose 7% in the year to October, up from 6.1% in the year to September. Average house prices reached £300,000 in England, £174,000 in Wales, £196,000 in Scotland and £158,000 in Northern Ireland.

Among companies, Sainsbury’s rallied after Kantar Worldpanel data showed the supermarket chain beat its rivals in the 12 weeks to 6 December by growing sales and market share. Tesco and Morrison Supermarkets were also sitting higher despite seeing sales fall during the period.

Aveva plunged after terminating takeover talks with US giant Schneider after the two were unable to reach an agreement.

Serco was on the back foot after doing a U-turn on the sale of its Environmental Services and Leisure businesses.

Tullow Oil climbed after saying it discovered 102 metres of net oil pay in two columns at its Etom-2 well in Northern Kenya.

Glencore was a high riser after JPMorgan Cazenove upgraded the stock to ‘overweight’ from ‘neutral’ with an unchanged target price of 160p.

Rio Tinto advnaced as its Oyu Tolgoi expansion project received a boost after a syndicate of banks and international governments agreed $4.4bn (£2.9bn) in loans. The copper and gold mine in Mongolia was held up by a dispute between the government and the company, with loan commitments expiring in 2014.