Footsie nears 10,000 as inflation eases, rate-cut bets lift UK markets

LONDON — The FTSE 100 closed near the 10,000 level as inflation cooled, heightening expectations for earlier Bank of England rate cuts and helping to lift risk assets. The index finished at 9,774.3, up 89.53 points, or 0.9%, after trading as high as 9,853 during the session.

The Office for National Statistics said consumer-price inflation slowed to 3.2% in November, down from 3.6% in October and below economists' forecast of 3.5%. The softer reading pushed gilt yields lower, with the 10-year gilt yield slipping from 4.52% to about 4.45%, and the two-year yield sliding from 3.76% to as low as 3.69% — the lowest since August 2024. The pound traded around $1.33, and near €1.14.

Investors cited the inflation relief as a catalyst for rising equity prices and a potential acceleration of monetary easing. Danni Hewson, head of financial analysis at AJ Bell, said easing inflation has “set a fire under the UK stock market,” noting that a Santa rally could lift the Footsie toward the 10,000 mark this year. “A lower inflation backdrop means consumers face fewer constraints and companies clear lower costs, which can support earnings and share prices,” she said.

Within the market, cyclical stocks such as housebuilders led the gains. Barratt Developments and Redrow each climbed about 3.7%, while Berkeley gained roughly 2.5% and Persimmon rose about 2.3%. Financials also helped, with HSBC up about 2.7% and Barclays rising about 1.7%.

The fall in gilt yields also reduces borrowing costs for the government and could influence the Bank of England’s stance next year. Some analysts argued the inflation drop could prompt the BoE to signal faster rate cuts than currently priced in. But with unemployment edging higher and the economy stagnating, several analysts cautioned the central bank may have “fallen behind the curve.” Peel Hunt economist Kallum Pickering said a February rate cut was possible, arguing that the Bank will need to respond to deteriorating conditions.

Investors also face mixed signals as the year winds down. The inflation print came ahead of a busy stretch of data and policy statements that could guide the pace of rate changes in 2026. Market watchers noted that a sustained recovery in real incomes could support more earnings growth, particularly for domestic-facing equities.

As traders reassess the path for interest rates, the London market’s near-10,000 level underscores how inflation trends are shaping investment decisions and funding costs. Analysts cautioned that a sustained inflation improvement would be required for a material sustained rally, but for now the sentiment remained constructive.