Stocks in London surged as the pound fell on softer-than-expected UK inflation data – a Christmas gift for the chancellor, the Bank of England and the economy in general. It will be a very merry Christmas in Toad Hall.

CPI declined in November to 3.9 per cent from 4.6 per cent in October, the lowest rate since September 2021. Core also fell more than anticipated, declining to 5.1 per cent from 5.7 per cent. The data gave credence to bets the Bank of England will start cutting rates next year with yields taking a dip lower – 10-year gilt yield down more than 0.1 percentage points to its lowest since April, while the 2-year slid to its weakest since May.

The BoE has been loath to put a timetable on rate cuts in 2024 but this clearly raises the prospect of it being in a position to ease policy in the first half of the year. At least it will prompt the market to buy into this idea – the Bank itself is a little worried about the lumpy, volatile data coming its way and wage growth is harder to get a finger on…but my god, could Andrew Bailey end up looking like a monetary policy god?

Will Bailey’s conservative approach to cutting now look behind the curve? I don’t think so – we are in a new era of sticky – and lumpy – inflation and it’s going to be much easier to hold on for a while in the face of ‘good’ data than in the face of bad data.

But while it pushed sterling weaker, the data clearly helped UK stocks with the FTSE 100 jumping more than 1.5 per cent to its highest since May. Real estate, housebuilders and energy stocks all rose with tailwinds from lower rates; whilst tech was also bid. To be honest just about everything is getting a healthy bump up – about time the FTSE got in on some of the 2023 action. Everywhere else is record highs and we continue to chip away at 7,700…meanwhile oil rallied again and continued its week-long ascent after last Wednesday’s key reversal.

Santa has already delivered on Wall Street: The Dow rose more than 200 points for its ninth straight day, while the S&P 500 rose 0.6 per cent and is now within 0.6 per cent of its record closing high and 1 per cent away from the intraday peak. Nasdaq rallied a further half a per cent to fresh record intraday and closing highs.

The Trader is written by Neil Wilson, chief market analyst at Finalto



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