London shares rose on Wednesday, 11 November, but sterling slipped and UK government borrowing costs stayed above 5% as investors digested hotter-than-expected US inflation data and the prospect of further interest rate rises on both sides of the Atlantic. The FTSE 100 was 0.3% higher at 10,786.78 points by 1141 GMT, with the mid-cap FTSE 250 also up 0.3%, as rising oil and gold prices lifted energy and mining shares. Earlier in the session the blue-chip index had traded as high as 10,832.78, up 0.8%.

The pound, by contrast, gave back ground against a firmer dollar. Sterling was trading near $1.3350, down from around $1.345 before the US inflation figures were released, and it touched about $1.3321 early on Wednesday. Against the euro the pound was steady near 83.6 pence. The dollar index, which measures the US currency against a basket of rivals, held near 102.2 after Tuesday's gains.

Sterling under pressure as the dollar firms

The trigger was the US consumer price index for October, which rose 0.4% month on month against a forecast of 0.3%, while core prices, which strip out food and energy, rose 0.3% against expectations of 0.2%. The figures pushed up US bond yields and the dollar, and forced traders to reprice the outlook for Federal Reserve policy, with a December rate rise now fully priced and the odds of a half-point move rising to around 10% from zero before the data.

That leaves the pound caught between a stronger dollar and a Bank of England that keeps signalling more tightening of its own. The Bank raised Bank Rate to 4% on 5 November in an 8-1 vote, its first increase in more than three years, and Deputy Governor Clare Lombardelli said on Tuesday that a further rise was likely in the near term, possibly as soon as December. Chief Economist Huw Pill has said rises could run into 2027 if energy costs feed through into wages. For sterling, $1.33 is the level traders see as support for its recent range.

Gilt yields stay high as borrowing costs bite

UK ten-year gilt yields were near 5.21% on Wednesday morning, with thirty-year gilts near 5.64%, levels that keep long-term borrowing costs painfully high for the Treasury and for mortgage pricing. The ten-year yield stood at 5.14% in a separate reading, about 30 basis points lower than a month earlier, but still far above the levels seen before the autumn's bond sell-off. Market commentary on Wednesday morning noted light bull steepening in gilts through early cash trading, with attention focused on the Budget and on the Bank's hawkish shift in tone.

The moves in gilts are tracking a global repricing rather than a purely domestic story. The US ten-year Treasury yield traded above 5% on Tuesday before settling just under that level, while the two-year yield jumped about 18 basis points to 4.74%. With the US bond market closed on Wednesday for Veterans Day, the next real test for yields comes on Thursday, when UK third-quarter GDP figures are also due, with economists forecasting growth of 0.7% for the quarter.

Growth outlook improves, but inflation lingers

Investors also weighed a new forecast from the National Institute of Economic and Social Research, which nudged up its outlook for UK growth while warning that inflation will overshoot the Bank of England's 2% target for years. The institute now expects the economy to grow 1.6% in 2026, up from a previous forecast of 1.1%, helped by stronger government spending and business investment, partly driven by artificial intelligence. Growth is then expected to slow to 1.1% in 2027 and 0.9% in 2028.

On prices, the institute forecast inflation will peak at 4.4% in February 2027, up from 3.8% in its previous forecast in July, and stay above target in 2027, 2028 and 2029 before returning to target in late 2030, a year later than previously forecast. The jobless rate is projected to rise gradually from 4.8% in 2026 to a peak of 5.1% in 2031. For households and businesses, the message from Wednesday's markets is the same: rates are staying higher for longer, and the pound's path will depend on whether the Bank of England follows through on the further rises its policymakers are now openly discussing.

Sources: Reuters, Samuel & Co Trading