London stocks higher on hopes of smaller U.S. rate hikes

The blue-chip FTSE 100 ended up 0.8 per cent, while the midcap FTSE 250 rose 1.4 per cent

London's main stock indices closed higher on Tuesday, tracking an upbeat mood on Wall Street as signs of cooling U.S. inflation spurred hopes of smaller interest rate hikes by the Federal Reserve.

The blue-chip FTSE 100 ended up 0.8 per cent after rising as much as 1.5 per cent, while the midcap FTSE 250 rose 1.4 per cent.

Wall Street's main indexes rallied, led by rate-sensitive growth stocks, after a smaller-than-expected rise in U.S. consumer prices raised hopes that the Fed could soften its aggressive stance on interest rate hikes.

Investors are expecting the U.S. central bank to raise rates by 50 basis points on Wednesday.

The fact that we've seen another decline in not just headline inflation, which is very energy driven, but also core CPI has really cemented the peak inflation narrative, said James Athey, investment director at Abrdn Plc.

Meanwhile, data showed UK wage growth rose a stronger-than-expected 6.1 per cent in the August-to-October period. The numbers came ahead of the Bank of England's policy meeting on Thursday when policymakers are expected to raise rates by 50 bps.

Any thought that the BoE would raise rates by 25 basis points this week has been firmly put to rest. The rise in wage growth would embolden hawks on the Monetary Policy Committee to push for a 50 basis point hike and a higher terminal rate in 2023, said Michael Hewson, chief market analyst at CMC Markets.

Despite worries about a potential recession, UK equities have gained significantly since their October lows when a botched mini-budget rattled sentiment, with the FTSE 100 climbing nearly 10 per cent since Oct. 12 and the FTSE 250 gaining about 15 per cent.