British equities jumped on Wednesday as investors cheered a surprise drop in domestic inflation, which spurred hopes that the Bank of England (BoE) could consider interest rate cuts early next year.
The blue-chip FTSE 100 (.FTSE) advanced 0.9% as of 0902 GMT, touching its highest level since May. 24 earlier in the session, outpacing the pan-European STOXX 600 (.STOXX), which was trading flat.
The pound dropped 0.5% after official data showed British inflation fell by more than any economist polled by Reuters predicted in November, pushing the headline rate to its lowest since September 2021.
"Let's not be churlish, the latest UK inflation numbers deliver a welcome shot in the arm for the UK economy," said Danni Hewson, head of financial analysis at AJ Bell.
Hewson added that the inflation figures would "give markets faith that interest rates will follow the trajectory they've already bought into."
The annual rate of increase in the consumer prices index dropped to 3.9% from 4.6% in October.
Investors moved to price in two quarter-point rate cuts by the BoE for the first half of next year, with the first potentially coming as soon as March.
The domestically-inclined FTSE 250 midcap index (.FTMC) also added 0.9%, hitting an over seven-month high.
Rate-sensitive real estate (.FTUB3510), real estate investment trusts (.FTNMX351020) and homebuilders (.FTNMX402020) advanced between 0.8% and 1.1%.
Heavyweight energy stocks (.FTNMX601010) added 1.6%, boosted by higher crude oil prices, while banks (.FTNMX301010) jumped 1.2%.
Most major FTSE 350 sectors rallied, with travel and leisure (.FTNMX405010) and life insurers (.FTNMX303010) amongst top gainers, rising more than 1% each.
Yields on UK government bonds also fell, with the yield on the benchmark 10-year gilt last at 3.549%.
Among individual stocks, Intertek Group (ITRK.L) jumped 3.1% after Exane BNP Paribas upgraded the product testing company's rating to "outperform" from "underperform".
