London and New York stock markets pushed higher on Friday despite a US inflation report making a Federal Reserve interest rate hike next week look increasingly likely.
The FTSE 100 index closed up 41.52 points, or 0.4%, at 10,650.44, though the benchmark still posted a 1.7% weekly loss, its worst week since July.
The FTSE 250 gained 89.79 points, or 0.4%, to close at 23,975.73, while the AIM all-share rose 2.92 points, also 0.4%, to 790.87.
European markets followed suit, with the CAC 40 in Paris and Frankfurt’s DAX 40 each climbing 0.8% on the day.
Wall Street surged strongly, with the Dow Jones Industrial Average up 1.0%, the S&P 500 adding 1.1%, and the Nasdaq Composite gaining 1.3% at London’s closing bell.
The Bureau of Labour Statistics reported that the US consumer price index rose 3.4% year-on-year in August, matching both July’s pace and market expectations cited by FXStreet.
Core inflation, which excludes food and energy, cooled to 2.4% annually from 2.5% in July, but monthly core prices rose 0.3%, topping the 0.2% increase analysts had forecast.
According to the CME FedWatch Tool, markets now price an 87% probability that the Federal Reserve raises its fed funds rate by 25 basis points on Wednesday, up sharply from 72% just a day earlier.
Analysts at Barclays said: “Although some of the August strength seems one-off, we think the data are supportive of a rate hike next week,” adding that they maintain their call for the Federal Open Market Committee to deliver a 25 basis point hike at the September meeting.
Oxford Economics analyst Bernard Yaros cautioned that a hike “isn’t a slam dunk,” stating: “The upcoming interest-rate decision by the Federal Reserve is on a knife’s edge, and the firmer core CPI reading in August pushes the central bank toward a hike next week.”
Dutch bank ING characterised any potential rate move as a “recalibration,” noting its view changed following Chair Kevin Warsh’s address at the Jackson Hole symposium and that projections for jobs and inflation suggest no need for a series of hikes.
The Bank of England announces its own rate decision on Thursday, and unlike the Fed, it is not expected to raise borrowing costs from the current 3.75% level.
Deutsche Bank analysts Sanjay Raja and Maui Brennan said the Monetary Policy Committee’s patience “may be running thin,” pointing to higher energy prices, a resilient economy, and upside risks around wage settlements.
UK gross domestic product data released Friday showed the economy grew 0.4% in July from June, accelerating from 0.3% growth recorded in June and no growth in May.
The US 10-year Treasury yield settled at 4.93%, having surged as high as 4.99% earlier in the session, its highest level since 2023, before easing back alongside oil prices.
Brent crude fell to 104.73 dollars a barrel in late London trading, down from 105.51 dollars on Thursday, having traded briefly below 110 dollars a barrel earlier in the day.
Gold rose to 4,375.02 dollars an ounce from 4,363.96 dollars the previous day, helping lift Endeavour Mining shares by 1.9% among the best FTSE 100 performers.
Among FTSE 250 stocks, Rightmove shares climbed 2.9% after a regulatory filing showed activist investor Sachem Head had acquired a roughly 6.0% stake in the property portal.
Trainline rose 1.8% after reporting resilient first-half trading with net ticket sales broadly flat at £3.26 billion, and announcing a new £100 million share buyback programme alongside reconfirmed full-year guidance.
C&C surged 13% after agreeing to acquire Asahi UK’s wholesale interests for a nominal consideration, integrating the business into its Matthew Clark Bibendum unit, with trading in the six months to August 31 described as in line with expectations.