UK inflation moderates as FTSE rallies on strong corporate earnings

​​​UK inflation undershoots expectations at 3.8%

​UK consumer price inflation came in at 3.8% in September, below the 4% level economists had anticipated and unchanged from August's reading. The softer-than-expected result provided some relief for policymakers at the Bank of England (BoE), though price pressures remain well above the 2% target.

​Core inflation, which excludes volatile food and energy prices, eased to 3.5% from 3.6% the previous month. This modest deceleration suggests that underlying price pressures may finally be responding to the Bank's aggressive rate-hiking cycle implemented over the past two years.

​Services inflation, closely watched by BoE policymakers, held steady at 4.7%, below forecasts of 4.8%. This key metric has been a particular focus for the Monetary Policy Committee as it reflects domestic demand pressures.

​The inflation data will influence expectations for future interest rate decisions. Markets are closely watching for signs that persistent service sector inflation is beginning to moderate meaningfully before the central bank considers further rate cuts.

​FTSE 100 outperforms Europe on earnings strength

​The FTSE 100 climbed 0.8% to reach its highest level in nearly two weeks, significantly outperforming continental European indices. The Euro Stoxx 50 remained in negative territory, weighed down by disappointing earnings from luxury goods makers and European banks.

​Barclays provided the standout performance among UK financials, rising as much as 3.4% after announcing upgraded guidance and a new £500 million share buyback programme. The bank's investment banking division beat expectations, following the strong results from US peers in recent days.

​The lender raised its group net interest income and return on tangible equity guidance while maintaining most other outlook metrics. Management commentary suggested resilience in both investment banking and UK domestic lending, with the bank expressing optimism about economic trends.

​Barclays also confirmed it will move to quarterly buyback announcements going forward, signalling confidence in its ability to generate surplus capital. The bank took a £235 million charge related to motor finance investigations, broadly in line with market expectations.

​Retailers and services firms deliver mixed updates

​Halfords shares surged 7% after the car parts and bikes retailer delivered a trading update showing sales growth and solid momentum across the business. The company's performance demonstrated resilience in consumer spending on essential automotive products despite broader economic headwinds.

​Softcat climbed 5.5% after the IT services firm reported revenue that beat estimates, boosted by larger solutions projects. The result suggests corporate technology spending remains robust, particularly for infrastructure and cloud-based solutions.

​However, ITV shares tumbled as much as 12% after Liberty Global offered to sell half of its stake in the broadcaster at a discount. The move raised concerns about the entertainment company's valuation and future prospects in an increasingly competitive streaming landscape.

​Reckitt's sales growth received a significant boost from strong performance in China, with double-digit growth reported across different product categories. The consumer goods company saw particular success with new product launches for its Dettol disinfectant brand and Durex condoms in the Chinese market.

​Food prices show first slowdown since March

​Food price inflation delivered particularly encouraging news, showing its first slowdown since March 2025. The annual rate dropped to 4.5% from 5.1%, marking a significant development as grocery costs have been a major driver of cost-of-living concerns for UK households.

​The Office for National Statistics noted that five of the 11 classes of food and drink were responsible for the downward impact, including vegetables, milk, cheese and eggs, bread and cereals, fish, and soft drinks. These core staple groceries represent essential spending for most households.

​However, the ONS cautioned that the easing inflation in this category was likely caused in part by sales and discounting increasing at a greater rate into September 2025 than last year. This suggests the improvement may not necessarily hold in coming months.

​Several BoE policymakers have expressed particular concern over food price inflation, worrying it could feed through into persistent broader inflation and necessitate a pause in interest rate cuts. Today's data may ease some of those concerns.

​Gold miners rebound after dramatic selloff

​Leading the FTSE 100 gains were precious metal miners Fresnillo and Endeavour, both rising more than 4% as they recovered from yesterday's steep selloff. The stocks had fallen as much as 17% and 11% respectively during the previous session.

​Gold trading experienced dramatic volatility, with the precious metal tumbling 6.3% in its biggest intraday drop in more than 12 years before stabilising. Silver also plunged 8.7% as technical indicators suggested recent rallies were overstretched.

​On the FTSE 250, Hochschild Mining had slumped 14% but joined the recovery, becoming one of the best performers in the midcap benchmark. The sharp moves highlight the volatility inherent in commodity-exposed stocks.

​The lack of an obvious catalyst for gold's selloff added to market uncertainty. The precious metal had been benefiting from expectations of central bank rate cuts and safe-haven demand, but profit-taking appears to have triggered technical selling.

​Healthcare and mining stocks show divergent trends

GlaxoSmithKline (GSK) shares dropped as much as 1.4% after its potential drug for dementia failed in trials, marking another setback in treating the disease. The disappointment underscores the challenges facing pharmaceutical companies in developing effective treatments for neurodegenerative conditions.

​Rio Tinto climbed nearly 3% following a Reuters report that the mining giant is considering an asset-for-equity swap with China's Chinalco. The potential transaction could free up Rio Tinto to resume share buybacks, which would be welcomed by investors.

​The move in Rio Tinto reflects broader interest in the resources sector, with investors weighing China's economic stimulus measures and their potential impact on commodity demand. Trading commodities remains highly sensitive to Chinese economic data.

​The divergent performance across healthcare and mining stocks demonstrates the importance of company-specific news in driving individual share price movements, even within a generally positive market environment.

​Pound slides as gilt yields tumble

​Sterling declined 0.4% against the US dollar following the softer inflation data, making it the worst-performing currency in the G-10 group. The pound moved closer to $1.33 as traders adjusted their expectations for the pace of future monetary policy tightening.

​UK government bond yields fell sharply, with two-year gilt yields touching their lowest levels since August 2024. The yield on the two-year bond dropped nine basis points, while longer-dated yields fell more than seven basis points.

​Investors now price in a nearly 70% chance of a BoE rate cut in December, up significantly from earlier in the week. Rate-cut bets have been ramped up all the way through 2026, with 64 basis points now being priced.

​The weaker pound provided support to the FTSE 100, with large multinational companies that benefit from overseas earnings seeing their shares rise. The currency's decline marks the fourth consecutive day of losses, its longest losing streak in two months.