Stock market today: Dow, S&P 500 and Nasdaq open sharply higher after lower-than-expected core CPI, bond yields fall; JPMorgan, Goldman launch earnings season

The pound, London shares and UK government bond prices all rose early on Wednesday after a report showed UK inflation cooled at the end of last year.

The Office for National Statistics said the headline annual consumer price index rose 2.5% in December, down from the 2.6% seen in November and lower than economists’ forecast of 2.6%.

The figure will come as welcome news to British Chancellor of the Exchequer Rachel Reeves as it could improve growth prospects by allowing the Bank of England to cut interest rates.

British government bonds, known as gilts, have been under pressure in recent weeks, forcing 10-year yields to their highest since 2008 on concerns that a weak economy could require the Treasury to sell more debt.

However, the new inflation data saw 10-year yields fall 8 basis points to 4.185% as the odds of a 25 basis point rate cut by the Bank of England in February rose to 83%, according to LSEG data. Bond yields move inversely to the exchange rates.

The pound, which might normally have fallen on the prospect of lower rates, instead rose 0.1% to $1.2225 as traders preferred to focus on the growth benefits of easier monetary policy.

Meanwhile, interest-sensitive parts of the London stock market rose, with housebuilders, property groups and utilities gaining ground, pushing the FTSE 100 up 0.7%.

“The UK inflation snapshot will come as a relief and is already acting as a balm to calm unruly markets,” said Susannah Streeter, head of money and markets at Hargreaves Lansdown.

“The inflation measure will ease pressure on UK Chancellor Rachel Reeves, who has been criticized for tax changes in the Budget that could lead to price rises ahead and hold back growth this year,” Streeter added.