London Stocks Soar: Inflation Hits Target, Rate Cut on Horizon

London stocks ended the week positively as domestic inflation reached the Bank of England's 2% target. The possibility of an August interest rate cut cheered investors, although strong retail sales data tempered the optimism. The FTSE 100 logged a weekly advance breaking a five-week losing streak.

London stocks closed the week on a positive note after domestic inflation fell to the Bank of England's 2% target earlier this week, raising bets of an interest rate cut in August, but a hot reading of the retail sales tempered some of that optimism.

The FTSE 100 was down 0.4% on the day, while it logged a 1% advance for the week and snapped a five-week losing streak. The mid-cap FTSE 250 fell 0.3% on the day but held some ground to log its first weekly gain in four.

British retail sales rose by 2.9% in May, rebounding sharply from a revised 1.8% decline in April. Economists' poll had forecast sales volumes would increase by 1.5%. Meanwhile, British businesses are expanding at the slowest pace since the economy was in recession last year, as some companies put big decisions on hold until after July 4's election.

Investor sentiment in Britain is gradually brightening after comments from the BoE on Thursday brought an August rate cut into play and inflation returned to its 2% target for the first time in nearly three years in May. Markets are currently pricing in a 47% chance of a rate cut in August.

The personal goods sector advanced 0.5% on Friday, making it the top performer among FTSE 350 sectors, while banks were the worst performers with a 1.6% fall. Among individual movers, shares in Britvic surged 7.8% after the soft drinks maker rejected a revised, unsolicited, possible cash offer from Carlsberg Group .

United Utilities gained 1.6% after J.P.Morgan upgraded the stock to "overweight" from "neutral". B&M fell 1.7% after Morgan Stanley lowered its rating to "underweight" from "equal weight".

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