UK Inflation Steady as Oil Falls; FTSE 100 Dips Despite Rate Hopes

A surprise UK inflation reading that held steady provided a silver lining for interest rate-sensitive stocks, though broader market weakness prevented a sustained rally. The unexpected stability in inflation—coming despite higher oil prices linked to the Iran war—suggested the Bank of England may not need to rush any immediate monetary policy shifts, easing concerns about aggressive rate hikes.

The inflation data boosted sentiment around banks and housebuilders, which typically benefit from lower interest rate expectations. Market pricing for UK rate hikes shifted significantly, with expectations pared back from two hikes by early 2027 to just one in December, with no further increases anticipated for at least the first half of 2027. However, the FTSE 100 remained in negative territory as a further decline in oil prices to $78.68 per barrel weighed heavily on energy stocks including BP and Shell.

Across the Atlantic, the Federal Reserve was set to announce its latest interest rate decision with no changes anticipated. Kevin Warsh, the Fed's new chair, was expected to offer guidance on future rate outlooks, with markets pricing in roughly equal probabilities of a December rate hike (42%) versus no change (41%). Despite earlier 2027 predictions of multiple rate cuts due to jobs market concerns, the US economy's resilience has shifted expectations toward rates remaining stable through year-end.

Individual stock movements reflected mixed corporate sentiment. PZ Cussons delivered a positive trading update, with improved trading conditions, reduced foreign exchange headwinds, and a strengthened balance sheet reversing years of investor pain. Conversely, BMW shares declined after issuing profit guidance that signalled a significant drop, citing dampened consumer demand from the Iran war and intensified competition in China from domestic manufacturers. AO World's results showed a recovery in group profit and successful cost management, including through offshoring and automation, though cost pressures and economic uncertainty continued to weigh on investor confidence.