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Highlights
FTSE 100 advances as UK inflation slows
Core inflation softens, aligning with economic forecasts
Market eyes Bank of England stance with base rate unchanged
UK equity markets opened higher, with the FTSE 100 showing gains after the latest data from the Office for National Statistics indicated a slowdown in inflation. The broader FTSE sector responded to revised transport cost dynamics, while core metrics also signaled a moderate cooling in consumer price pressures.
European benchmarks also reflected the shift, with Germany's DAX (^GDAXI) and France’s CAC (^FCHI) opening in positive territory. Meanwhile, the STOXX 600 (^STOXX) held close to flatline levels, as investors assessed broader economic momentum across the eurozone.
Transport costs drive inflation down
According to the ONS, transport categories contributed most significantly to the downward trend in inflation. A drop in airfares, coupled with lower petrol prices and an adjustment in vehicle excise duties, marked a shift from previous months. This contrasted with April’s surge in travel-related pricing, which had temporarily elevated the headline inflation rate.
While food and household items maintained upward movement, these gains were offset by declines in mobility-related expenses. This rebalancing helped align the headline inflation print with market expectations, while still remaining outside the central bank’s comfort zone.
Core inflation aligns with forecasts
Excluding more volatile components such as food and energy, core inflation displayed a minor dip. This trend mirrored wider economic sentiment suggesting that domestic pricing pressures might be gradually subsiding. Furniture and essential goods contributed to steadier readings, reflecting consistent demand and stable supply chains.
Though inflation remains above central targets, the movement has provided a more predictable framework for policymakers ahead of the upcoming interest rate review.
Monetary policy outlook remains steady
Money markets currently indicate low expectations for a rate adjustment at the upcoming Bank of England meeting. The base rate is widely anticipated to remain at its current level, with the possibility of a move later in the summer.
Analysts within financial institutions have pencilled in moderate easing later this year, should inflationary pressures continue to trend lower and economic data remain stable. For now, market participants continue to evaluate forward guidance and inflation-linked dynamics before repositioning.
Global indices reflect cautious optimism
US markets appeared set for a positive session, with S&P 500 futures (^GSPC), Dow Jones futures (^DJI), and Nasdaq futures (^IXIC) all in the green during European trading hours.
Meanwhile, the UK pound firmed slightly against the dollar, underscoring cautious optimism among currency traders ahead of central bank commentary.
With global macroeconomic indicators in flux, the current trajectory of UK inflation and related financial benchmarks, including the FTSE 350, will remain under close observation across global trading floors.
