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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Barclays

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Marks & Spencer