Stocks rise as UK inflation drop paves way for Bank of England interest rate cut

The FTSE 100 (^FTSE) jumped and European stocks made gains on Wednesday as UK inflation slowed more than expected last month amid easing food prices. It marked the third month that inflation has fallen.

The consumer price index dropped to an annual rate of 3.2% in November, down from 3.6% in December, according to Office for National Statistics figures released this morning. The core rate, which strips out volatile food and energy costs, dropped to 3.2% from 3.4%.

Grant Fitzner, the ONS chief economist, said: “Inflation fell notably in November to its lowest annual rate since March. Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall with decreases seen particularly for cakes, biscuits, and breakfast cereals.

“Tobacco prices also helped pull the rate down, with prices easing slightly this month after a large rise a year ago. The fall in the price of women’s clothing was another downward driver.

“The increase in the cost of goods leaving factories slowed, driven by lower food inflation, while the annual cost of raw materials for businesses continued to rise.”

The move strengthens expectations that the Bank of England will cut interest rates at its meeting on Thursday.

Services inflation, a key gauge for Threadneedle Street as it assesses domestically generated price pressures, edged down from 4.5% to 4.4%.

Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales, said: “These figures, alongside the recent deluge of downbeat data, mean that an interest rate cut tomorrow looks certain. The vote split could be more dovish than many expect as policymakers will have now assessed the budget’s deflationary impact.”

Markets now see a 98.8% chance of a rate cut at the Bank’s meeting at noon tomorrow, from 4% to 3.75%. Before the inflation data dropped, the probability of a reduction was 90%.

Investors are now betting on 66 basis points of cuts by next December, up from 58bps before the inflation figures.

London’s benchmark index (^FTSE) was 1.1% higher in early trade
Germany’s DAX (^GDAXI) rose 0.4% and the CAC (^FCHI) in Paris headed 0.2% into the green
The pan-European STOXX 600 (^STOXX) was up 0.4%
Wall Street is set for a positive start as S&P 500 futures (ES=F), Dow futures (YM=F) and Nasdaq futures (NQ=F) were all in the green.
The pound was 0.7% down against the US dollar (GBPUSD=X) at 1.3327

Follow along for live updates throughout the day:

LIVE 11 updates

UK house prices rise at slower pace in October

UK house prices rose at a slower annual rate in October, while rent increases also slowed, according to official figures on Wednesday.

The average price of a home increased 1.7% to £270,000, down from 2% in the 12 months to September.

Meanwhile, the average private rent rose by 4.4% to £1,366 during the period, down from 5% in the 12 months to October.

Rent increases have slowed for 11 months, after high rates in recent years fuelled by a shortage of rental properties and strong demand from tenants.
German business confidence unexpectedly falls in December

German business confidence unexpectedly fell in December, with business climate index from the Munich-based Ifo institute down to 87.6 points in December, from 88 points in November. The manufacturing index fell, with almost all sectors affected. The number of new orders declined, and companies are planning to scale back production.

Analysts polled by Reuters had forecast an increase to 88.2.

It comes as companies are more pessimistic about the first half of 2026, with the Institute saying that “the year is ending without any sense of optimism.”

Germany has struggled to regain momentum this year, with only modest growth forecast following two years of economic contraction.

Klaus Wohlrabe, head of surveys at the institute, said: “This year there are no presents for the German economy.”

In the service sector confidence declined into negative territory, across almost all service sectors. The only exception was restaurants, which reported a very strong December.

In trade, the index also worsened, as retailers were unhappy with Christmas sales.

In construction, the business climate remained unchanged at a low level.Companies assessed the current situation as worse, but were less sceptical about the coming months.
Oil prices jump as Trump orders Venezuela blockade

Oil prices jumped on Wednesday after US president Donald Trump ordered what he described as “a total and complete” blockade of all sanctioned oil tankers entering and leaving Venezuela, injecting fresh geopolitical risk into a market already weighed down by concerns over weak demand.

Brent crude futures advanced as much as 1.8% to $59.99 per barrel, while West Texas Intermediate gained 1.4% to $55.89.

Trump has ordered a blockade of all sanctioned oil tankers entering and leaving Venezuela, adding that he now regarded the country’s rulers as a foreign terrorist organisation.

Traders in Asia said the move helped lift sentiment, alongside bargain buying after prices slipped below $60 a barrel on Wednesday. “The price is sentiment-driven by the Venezuelan news for today, but overall, export volumes from Venezuela are relatively small in the global supply share. With all eyes on the Russia-Ukraine discussions, the market is still under downside risk,” one trader told Reuters.

While many vessels lifting oil in Venezuela are under sanctions, others transporting the country’s crude, as well as oil from Iran and Russia, are not. Tankers chartered by Chevron (CVX) are also carrying Venezuelan crude to the US under an authorisation previously granted by Washington.

“Venezuelan oil production accounts for around 1% of global output, but supplies are concentrated among a small group of buyers, mainly Chinese teapot refiners, the US, and Cuba,” said Muyu Xu, a senior oil analyst at Kpler.

“Ample supply in the sanctioned oil market is expected to cap any notable upside in Venezuelan crude prices in China, despite anticipated shipment disruptions.”

China is the biggest buyer of Venezuelan crude, which accounts for about 4% of the country’s oil imports.
FTSE risers and fallers

Here are the top risers and fallers on the FTSE 100 today:
UK government borrowing costs fall

The cost of UK government borrowing fell at the fastest pace among major economies after the Office for National Statistics (ONS) revealed that inflation fell much further than expected.

UK bond yields, the return the Treasury promises to buyers of its debt, dropped sharply on Wednesday after CPI fell from 3.6% to 3.2%, much lower than analyst forecasts for a decline to 3.5%.

The yield on 10-year UK gilts was down six basis points to 4.56%.

This was in comparison to declines of around two basis points in the bonds of countries such as France, Germany and Italy.
Gold price climbs above $4,300 amid weaker dollar and Fed rate cut bets

Gold prices edged higher on Wednesday after a US jobs report showed the unemployment rate rose last month, reinforcing market expectations of further interest rate cuts by the Federal Reserve and pushing the dollar lower.

Gold futures rose 0.3% to $4,347.10 an ounce, while spot gold climbed 0.8% to $4,314.10 at the time of writing.

The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six major currencies, slipped to a two-month low, making dollar-denominated bullion cheaper for overseas buyers.

“The data gives the Fed more reason to cut rates and if they cut rates, that’s bullish for gold… that’s the way the market’s interpreting it right now,” said Bob Haberkorn, senior market strategist at RJO Futures.

US job growth rebounded in November, but the unemployment rate rose to 4.6%, against a backdrop of economic uncertainty linked to president Donald Trump’s aggressive trade policy.

The Federal Open Market Committee announced a quarter-point rate cut last week, with comments from chair Jerome Powell seen by investors as less hawkish than expected. Markets are still pricing in two additional 25 basis-point cuts in 2026. Non-yielding gold typically benefits from a low interest rate environment.

Investors are now awaiting November’s US consumer price index, due later today, and the personal consumption expenditures index, due on Friday.
BoE almost certain to cut rates on Thursday

Today’s inflation data have strengthened expectations that the Bank of England (BoE) will cut interest rates at its meeting on Thursday.

Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales, said:

Markets now see a 98.8% chance of a rate cut at the Bank’s meeting at noon tomorrow, from 4% to 3.75%. Before the inflation data dropped, the probability of a reduction was 90%.

Investors are now betting on 66 basis points of cuts by next December, up from 58bps before the inflation figures.
Where did prices rise and fall?

Grant Fitzner, chief economist at the ONS, said:

Food and non-alcoholic drink prices rose by 4.2% in the 12 months to November, down from 4.9% in October, as falling prices for cakes, biscuits and breakfast cereals helped ease inflationary pressures.

Smaller downward contributions to inflation came from dairy products and from sugar, jam and chocolate.

Tobacco prices provided a further drag on inflation. Prices in the alcohol and tobacco category rose at an annual rate of 4% in November, down from 5.9% in October, marking the lowest rate since December 2022.

Clothing and footwear prices fell by 0.6% in the 12 months to November, compared with a rise of 0.3% in October. The latest reading matched the rate recorded in February and was the lowest since March 2021.
UK inflation falls more than expected in November

UK inflation fell by more than economists had expected in November to 3.2%, down from 3.6% in October, strengthening expectations that the Bank of England will cut interest rates at its meeting on Thursday.

Consumer price inflation declined more sharply than forecast, according to figures published on Wednesday by the Office for National Statistics (ONS). While economists had widely anticipated a fall, many had expected inflation to come in closer to 3.5%.

Core inflation, which strips out volatile food and energy prices, also eased more than expected, falling from 3.4% to 3.2%.

Services inflation, a key gauge for the Bank of England as it assesses domestically generated price pressures, edged down from 4.5% to 4.4%.

Chancellor Rachel Reeves said:
Asia and US overnight

Stocks in Asia were higher overnight, with the Nikkei (^N225) rising 0.3% on the day in Japan, while the Hang Seng (^HSI) advanced 0.9% in Hong Kong.

In Japan, exports in November recorded their fastest growth in nine months this year, increasing 6.1% year-on-year. This significantly surpassed market expectations of a 5.0% rise and was also a marked improvement from the 3.6% increase observed in the preceding month.

This strong export performance was underpinned by a 3.6% increase in goods shipped to Western Europe and an 8.8% surge in exports to the United States, Japan’s second-largest trading partner.

Notably, this marks the first time that exports from Japan to the US have increased since March.

Concurrently, imports into Japan climbed 1.3% during the month, which was below the anticipated 2.5% increase. As a result, Japan’s trade balance for November amounted to a surplus of 322.3 billion yen, far exceeding the projected 72.6 billion yen surplus and representing a significant turnaround from the 226.1 billion yen deficit recorded in the prior month.

The Shanghai Composite (000001.SS) was 1.2% up by the end of the session, fuelled by expectations of additional fiscal stimulus from Beijing, especially in the wake of several weaker-than-expected economic indicators for November.

In South Korea, the Kospi (^KS11) added 1.4% on the day.

Across the pond on Wall Street, the S&P 500 (^GSPC) slipped 0.2%, having now posted 3 declines since its record high last Thursday. Those moves were broad-based, with around three-quarters of the index losing ground yesterday.

The tech-heavy Nasdaq (^IXIC) was 0.2% higher after news broke that the exchange was planning to submit paperwork to the Securities and Exchange Commission to introduce round-the-clock trading, and the Dow Jones (^DJI) lost 0.6%.
Coming up

Good morning and welcome back to our markets live blog. As usual we will be taking a deep dive into what’s moving markets and happening across the global economy.

Here’s a snapshot of what’s on the agenda:

7am: Trading updates: IntegraFin, Serco, Goodwin, Victoria

7am: UK Consumer Price Index, Producer Price Index

9am: Germany Ifo business climate index

9.30am: UK House prices

11am: UK CBI Industrial trends survey

1.30pm: US Retail Sales

Download the Yahoo Finance app, available for Apple and Android.