Stocks and bonds rallied as inflation fell to its lowest level in over a year and is falling faster than expected, according to official figures that will put pressure on the Bank of England to ease its policy of raising interest rates.

Price growth slowed to 7.9% in June, down from 8.7% in May, said the Office for National Statistics (ONS).

The figure is the lowest since March 2022 and better than expectations from the markets which were forecasting a reading of 8.2%. 

ONS chief economist Grant Fitzner said: “Inflation slowed substantially to its lowest annual rate since March 2022, driven by price drops for motor fuels. Meanwhile, core inflation also fell back after hitting a 30-year high in May.

“Food price inflation eased slightly this month, although it remains at very high levels.

“Although costs facing manufacturers remain elevated, especially for construction materials and food items, the pace of growth has fallen across the last year, with the overall cost of raw materials falling for the first time since late 2020.”

Editorial and Research Fellow at the free market think tank the Institute of Economic Affairs, Professor Len Shackleton, said: “Rishi Sunak’s pledge to halve inflation by the end of the year may still be optimistic, but at least there are no grounds for the Bank of England to raise interest rates further.

“Nor are there any grounds for panic measures to hold down prices artificially, such as Grant Shapps’ silly initiative to curb supermarket petrol prices.”

The FTSE 100 rose by 134.51 points, or 1.8% to 7,588.20, while the more domestically-focused FTSE 250 climbed by almost 3.8%%.

The price of two-year UK government bonds, which are sensitive to changes in monetary policy, rose and caused yields to fall significantly.

Housebuilders were among the big winners as the threat of the mortgage crisis deepening began to recede. Crest Nicholson shares rose 21.75p to 215.5p; Persimmon added 90.5p to £11.82.5p; and Barratt Developments gained 29.75p to 454p.

Going the other way, miners dragged down by a stronger dollar and lingering worries about the health of China.

Worse still was Watkin Jones, which builds rental homes for pension funds and insurers. Its chief executive is leaving after what amounted to a double profit warning. The shares plunged 30.5p, or 39.5% to 46¾p.

Retail sales rise

Retail sales growth in Scotland hit double digits for the first time this year as consumers bought food and sun tan lotion during sun-soaked June.

According to analysis by KPMG for the Scottish Retail Consortium, total sales in Scotland increased by 11.3% last month compared with the same period last year, when they had grown 4.4%. Adjusted for inflation, the year-on-year growth was 2.9%.

Total non-food sales increased by 7.5% in June compared with June 2022, when they had increased by 5.8%.

David Lonsdale, director of the Scottish Retail Consortium, commented: “Scotland’s shops saw May’s bounce in retail sales continue into June, with a further solid real terms increase in retail sales values and despite a dip in shopper footfall last month.

“This outpaced the figure for the UK as a whole and was the best monthly real terms performance since Christmas.

“Retailers can take some solace that whilst consumers are feeling the pinch right now there is still some spending going on if they can find the right price for shoppers.”

Paul Martin, partner and UK head of retail at KPMG, said: “Sales of suntan lotion, food and clothing were all given a boost as Scots made the most of the record temperatures which helped total sales grow by 11.3% compared to last year.”

Springfield Properties

Full year 2023 revenue at Elgin-based Springfield Properties is expected to be approximately £330m, representing year-on-year growth of 28% and the group’s highest ever annual turnover despite the turmoil in the housing market.

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Celtic FC

Celtic Football Club has appointed Brian Rose as a non-executive director with immediate effect.

A lifelong Celtic supporter, Mr Rose, 52, is a director of Apple Services in London. He has worked in the entertainment and content industry for over two decades, including roles at market leading music and film companies.

He was managing director of commercial from 2003 to 2016 for Universal Music. Throughout this time, he has been at the forefront of the development of new digital content strategies leading to improved customer experiences and growth for rights holders and creators.