London’s FTSE 100 gains on energy boost, hopes of record-low interest rates

© Reuters. A man shelters under an umbrella as he walks past the London Stock Exchange in London, Britain, August 24, 2015. REUTERS/Suzanne Plunkett/File Photo

By Shashank Nayar

(Reuters) – British shares rose on Tuesday as investors hoped that the central bank will keep interest rates at record lows despite a recent rise in inflation, while heavyweight energy shares tracked a jump in oil prices.

The benchmark FTSE 100 index climbed 0.2%, with Melrose being the among top gainers on its plans to return about 730 million pounds ($1.01 billion) in cash to its shareholders.

The energy index was among the top gainers, rising 2.03%, with heavyweights Royal Dutch Shell (LON:RDSa) and BP (LON:BP) being the top boost to the FTSE 100.

The domestically focussed mid-cap index rose 0.4%, led by gains in real estate stocks.

“Investors are slowly getting used to the idea that all of this talk about the prospect of rate rises and tapering is merely finessing a timeline. ..when it comes to withdrawing stimulus and potentially raising rates,” said Michael Hewson, chief market analyst at CMC Markets UK.

Britain’s central bank is set to meet later this week to discuss its massive bond-buying program after inflation surged past its 2% target in May.

The FTSE 100 had surpassed the 7,000-mark in April on attractive valuations, easing COVID-19 lockdowns and a steady economic rebound, but the pace of gains has since slowed due to inflation concerns.

Meanwhile, British public borrowing fell in May from sky-high levels of a year earlier when the government was ramping up a huge spending response to the coronavirus crisis, and there are signs that the recent recovery in the economy was boosting tax revenues.

“Government borrowing is expected to remain high for the next few months, while markets still seem fairly relaxed about it despite concerns over rising inflation risk,” added Hewson.

Among stocks, British cardboard maker DS Smith dropped 2.8% to the bottom of the FTSE 100 index after reporting a 38% slump in annual pre-tax profit.