UK stocks hold gains after BoE hints rates near peak; FTSE 250 jumps

By Sruthi Shankar and Shristi Achar A

(Reuters) - The UK's main stock indexes rose on Thursday after the Bank of England (BoE) said inflation had probably peaked and forecast a shallower recession in 2023 after raising interest rates in line with expectations.

The blue-chip FTSE 100 rose 0.8%, hitting its highest level in two weeks.

The central bank raised interest rates for the 10th consecutive time by a widely expected 50 basis points, but dropped its pledge to keep increasing them "forcefully" if needed.

The BoE also forecast a "much shallower" recession than its last forecasts in November.

"People are very anxious about being too predictive about inflation because it has caught people by so much surprise, so the UK is erring on caution, erring on hawkishness," said Wes McCoy, senior investment director at Abrdn.

"But the U.S. still sets the dominant trend, so markets will still take their lead from the overnight U.S. conversation."

Investors also took dovish dues from remarks by Federal Reserve Chair Jerome Powell on Wednesday after the U.S. central bank delivered a 25 basis point rate hike as expected.

The domestically-focussed FTSE 250 index jumped 3.6% to touch an eight-month high even as the pound fell.

"The sense that the MPC (monetary policy committee) is now able to credibly raise rates in a more cautious manner is reassuring the market. The FTSE 250 is probably a better gauge of risk appetite than the FTSE 100, counter to the currency move as a driver, " McCoy added.

Rate-sensitive bank stocks slid 0.8%, tracking a fall in government bond yields.

The two main UK stock indexes have had an upbeat start to 2023, with the resource-heavy FTSE 100 hovering just below record highs as optimism about China's economic reopening lifted commodity prices.

Shell delivered a record $40 billion profit in 2022 and announced a new $4 billion share buyback programme over the next three months. Shares however reversed earlier gains to fall 1.2% amid a selloff in the energy sector.[O/R]

BT gained 6.9% after Britain's biggest broadband and mobile operator stuck to its full-year outlook.

JD Sports soared 11.1% after the sports and fashion retailer said it will look at acquisitions in future but will be more disciplined than in the past.

(Reporting by Sruthi Shankar and Shristi Achar A in Bengaluru; Editing by Dhanya Ann Thoppil, Rashmi Aich, Sriraj Kalluvila and Andrew Heavens)