The FTSE 100 closed at its highest level since May last year after official data showed a slowdown in wage growth.
The Office for National Statistics (ONS) said on Tuesday morning that average regular pay growth, excluding bonuses, fell to 6.1% in the quarter to January, down from 6.2% in the three months to December and marking the slowest growth for more than a year.
Traders took the data as a sign interest rates might need to be cut earlier than previously expected, boosting UK equities and knocking the pound in the process.
London’s top index closed 78.58 points, or 1.02%, higher to end the day at 7,747.81 as a result.
The pound was down 0.33% at 1.277 US dollars and was 0.19% lower at 1.170 euros at market close in London.
Chris Beauchamp, chief market analyst at IG, said: “Signs that UK wage growth is easing, along with rising unemployment, combined with a higher dollar to drive the pound against the dollar back from a seven-month high today.
“The odds of an earlier Bank of England rate cut have risen, which should at least mean UK-focused stocks might see further inflows to help bolster their disappointing performance so far this year.”
Across the Channel, hopes about lower borrowing rates also helped spark increases for Europe’s other major markets.
The German Dax index was up 1.23% at the close and the Cac 40 in France closed up 0.84%.
In London, vet firms slumped in value after the Competition and Markets Authority (CMA) said it is launching an investigation into the vet industry over concerns that pet owners could be being overcharged.
CVS Group, the UK’s largest veterinary services group, tumbled in value by almost a quarter as a result.
It said it engaged “constructively and proactively” with the CMA and had “put forward a package of possible remedies to address its concerns” but still finished 365p lower at 1,092p.
Pets at Home, which runs vet facilities as well as pet stores, saw its shares drop by 9.8p to 265.4p.
It said it was disappointed by the CMA’s findings because it does not think it reflects its business model based on locally owned vet practices.
Housebuilder Persimmon closed in the red after it revealed annual profits more than halved and warned 2024 will be another difficult year.
Shares were down 50.5p at 1,324p after the Charles Church builder saw pre-tax profits slump to £351.8 million in 2023 from £730.7 million the previous year.
Superdry shares slipped by 3.95p to 26.95p after the fashion brand confirmed it was in talks with specialist lender Hilco for a further £10 million in loans to help support its turnaround.
Meanwhile, the price of a barrel of Brent crude oil was up by 0.24% to 81.92 US dollars as markets were closing in London.
The biggest risers on the FTSE 100 were Entain, up 27.6p at 762.4p, Beazley, up 23.5p at 669.5p, JD Sports Fashion, up 3.7p at 117.9p, Prudential, up 24.2p at 812.4p, and HSBC, up 16.8p at 592.6p.
The biggest fallers on the index were Persimmon, down 50.5p at 1,324p, Severn Trent, down 60p at 2,551p, SSE, down 31p at 1,582p, Centrica, down 2.3p at 127.9p, and National Grid, down 18.5p at 1,036p.