UK shares rise as softer inflation tempers some rate hike bets

May 20 (Reuters) - UK shares closed ‌higher on Wednesday ​after ​a softer-than-expected April inflation reading tempered some interest-rate-hike bets, while a drop in crude oil prices and stabilizing government bond yields also offered ‌some respite.

The blue-chip FTSE 100 index closed 1% higher at 10,432.3 ⁠points, while the midcap FTSE 250 climbed 1.2%. Both indexes ended at their highest closing levels in ‌around two weeks.

• Consumer prices ‌in April rose by an annual rate of 2.8%, compared with March's figures of 3.3% and expectations of 3.0%.

• That prompted some analysts to question the ​need for rapid rate hikes by the Bank of England, especially following Tuesday's data that showed the unemployment rate ticking up.

• "Inflation coming in softer than expected ⁠will further take the pressure off the Bank of England to hike rates over the next few meetings. ​But we are most certainly not out of the woods in terms of the impact of the Iran conflict on inflation," said ​Luke Bartholomew, deputy chief economist at Aberdeen.

• BoE ‌Governor Andrew Bailey said a rise in market interest rates since the start of the Iran war has given the central ⁠bank more time to assess the economic effects of the conflict.

• Risk sentiment also got a boost worldwide as oil prices fell after U.S. President Donald Trump said that negotiations ⁠with Iran were in the final stages, with other details.

• Aerospace and defence stocks rose 3.7%, ​thanks to a 5.3% gain in shares of defence contractor Babcock International Group after Peel Hunt upgraded the stock to "buy" from "add".

• Heavyweight banks climbed 2.8%, with Barclays and Lloyds up more than ‌3% each.

• Retailer Marks & Spencer rose 6.6% and was the biggest gainer on the FTSE 100 after forecasting it will return ‌to profit growth this year.

• Government bond yields around the world also paused their ⁠rise on Wednesday, spurring risk sentiment ‌worldwide.

• Investors are contending with ​a noisy political backdrop as questions about Prime Minister Keir Starmer's future persist.

(Reporting by Niket Nishant and Shashwat Chauhan in Bengaluru; Editing by ‌Vijay Kishore)

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