Inflation data came in early this morning with a positive surprise. Prices unexpectedly fell in August, while most analysts were anticipating a rise due to higher energy prices. This fuelled hopes that the Bank of England would soon end its rate hike cycle. The FTSE 100 was up 0.6% at 9.30 GMT.

Annual consumer price inflation (CPI) dropped to 6.7% last month from 6.8% in July, while 7.0% was expected in a Reuters consensus. The BoE said in July that it expected inflation in August would rise to 7.1%.

Core inflation, which excludes volatile energy and food prices slowed to 6.2% in August from 6.9% in July, while 6.8% was expected.

On Thursday, most investors expect the BoE to raise rates by a quarter point to 5.5% from 5.25%, and that it could be the last one in this cycle.

“While a single-month of data does not make a trend, the sharp drop in underlying price pressures in the UK during August is a welcome development for two reasons. First, it further narrows the gap between inflation in the UK versus the US and Europe – the UK now looks like less of an outlier (Charts 1a and 1b). Second, it comes amid a widespread expectation that inflation accelerated modestly in August on the back of the rising oil price – as it had done in the US,” said Berenberg analyst Kallum Pickering.

Among stocks, insurer M&G gained 3.0% after posting robust results.

Things to read today:

Fed Set to Pause Rate Hikes, Bit don’t Count Out Another Increase (Bloomberg)

The Fed’s Next Challenge: $100 Oil (WSJ)

Rishi Sunak prepares to water down UK green measures (Financial Times)