The British stock market staged a strong rally yesterday as subdued inflation data on both sides of the Atlantic calmed investor nerves before the US interest rate decision.
The US interest rate news was not due until almost three hours after the London market close. UK inflation numbers for April were in line with expectations. Although the headline rate jumped to 3 per cent, thanks to the abolition of mortgage interest tax relief, the underlying rate dropped to 1.9 per cent, the lowest annual increase since the figure was first compiled.
Given that the Bank of England is targeting the underlying, not the headline, rate, there was little in the data to justify a further tightening of monetary policy. However, a further test will come today with the publication of the average earnings figures.
Meanwhile, US retail inflation numbers for April, which came out at lunchtime in Europe, were received very positively. The headline rate was unchanged on the month, bringing the annual inflation rate down from 3.7 to 3 per cent, and the core rate gained 0.2 per cent on the month and 2.2 per cent on the year.
Thanks to the data, both the Dow Jones Industrial average and the Nasdaq Composite were showing triple digit gains by the time London closed.
All this meant that the FTSE 100 index stayed in positive territory throughout the day. At its peak, just after Wall Street opened, it was 101.4 ahead at 6,349.1. By London close, it was up 70.7 at 6,318.4.
The best performing Footsie stock was National Power, which surged on better-than-expected results and the confirmation of plans to demerge its international business.
The other indices were also stronger. The FTSE 250 rose 63.4 to 6,322.9 and the SmallCap 24.8 to 3,228.2.
The best performance came from the Techmark 100 index of leading technology stocks, which rebounded 105.9 to 3,517.01. Telecom stocks such as Kingston and Colt reversed Monday's losses.
An exception to the buoyancy in the tech sector was online auction house QXL.com, whose shares fell on the planned merger with Ricardo of Germany.
Trading surged from Monday's levels thanks to the placing of part of LVMH's stake in Diageo. Volume was 1.62 billion shares by the 6 p.m. count.
