UK Stock Market Soars on Inflation Dip and Interest Rate Cut Hopes

The UK's stock market surged with significant gains in banks, prompted by a sharper-than-expected inflation drop to 3.2%. The decline fueled hopes for Bank of England interest rate cuts. The FTSE 100 and FTSE 250 both experienced notable rises. Higher energy and metal prices bolstered the market further.

On Wednesday, the UK's stock market made a significant comeback, particularly due to gains in major banks. This resurgence was prompted by a surprising decrease in domestic inflation figures, igniting hopes that the Bank of England might be on the verge of cutting interest rates.

The blue-chip FTSE 100 climbed 1.7% by 1032 GMT, marking its strongest day since mid-April. This rise came after previous sharp declines in energy and defence stocks. Meanwhile, the midcap FTSE 250 index rose by 1%, reaching a near seven-week high.

British inflation unexpectedly fell to 3.2% in November from 3.6% in October, the lowest since March. This decline emphasized the potential for an impending rate cut by the BoE. Subsequently, the sterling weakened, raising expectations for more rate reductions in the coming years.

Bank stocks led the upward trend, with the FTSE 350 banking index recording its highest level since 2008, driven by notable gains in HSBC Holdings, Standard Chartered, and Barclays. Energy stocks, rebounding by 2.5%, were lifted by rising oil prices following U.S. actions against Venezuelan oil tankers.

Industrial metal miners saw a 2.4% surge, supporting the FTSE 100 in its race to have its best year since 2009. The index has climbed 20.5% year-to-date, outperforming Wall Street's S&P 500 index.

Among companies, Serco's shares jumped by 5.6% due to strong profit forecasts, while Bunzl dropped 2.8% due to projected declines in its future operating margin.

(With inputs from agencies.)