FTSE 100 logs back-to-back rise as inflation data sow doubt over August rate hike

U.K. stocks booked a second straight day in the green Wednesday, boosted by a slide in the pound after a disappointing reading on British inflation raised doubts about an August rate rise.

The benchmark index was also lifted by strong gains for mining giant BHP Billiton and EasyJet after those companies issued well-received corporate updates.

What are markets doing?

The FTSE 100 index UKX, +0.65%  added 0.7% to close at 7,676.28, building on a 0.3% advance from Tuesday.

The pound GBPUSD, -0.4041%  fell to $1.3034 from, $1.3116 late Tuesday in New York. A weaker pound can boost the FTSE 100, as many of the index’s multinational companies generate most of their sales in other currencies.

What is driving the markets?

Sterling’s losses deepened and the FTSE moved higher after U.K. inflation data for June came in weaker than forecast. Consumer prices rose 2.4%, unchanged from May and missing expectations of a 2.6% reading. Core inflation slipped to 1.9%, falling below the Bank of England’s 2% target.

Analysts said the disappointing figure suggest the inflationary pressures in the U.K. are easing, giving the doves on the BOE’s Monetary Policy Committee ammunition to keep rates unchanged at the August meeting. Expectations are, however, still for the hawks to be in majority and vote through a 25 basis point rate rise next month.

The U.K. benchmark was also lifted by upbeat second-quarter corporate releases. BHP Billiton PLC BLT, +2.75% BHP, +2.01% BHP, +3.29%  shares posted the biggest gain in London, rising 2.8% after the miner reported a rise in iron-ore and copper production.

What are strategists saying?

“The hike from BOE will likely be one and done, but for now that sentiment was enough to hold cable above the 1.3000 figure for now. Still whether it is able to hold that barrier will depend on North American flows and the second day of testimony for Fed Chairman Powell,” he added.

U.S. Federal Reserve Chairman Jerome Powell will deliver his semiannual testimony to the House Financial Services Committee at 10 a.m. Eastern Time, or 3 p.m. London time.

Other stock movers

Discount airline EasyJet PLC EZJ, +2.15%  shares finished up 2.2% after the discount airline lifted its full-year profit guidance.

Shares of Smiths Group PLC SMIN, -7.00%  slumped 7% after the engineering company issued a revenue warning for its medical division.

Severn Trent PLC SVT, -0.55%  lost 0.6% after the water utility company reported a drop in fiscal 2018 pretax profit.