The FTSE 100 index has stormed 1.7% ahead, leading gains on European stock markets.

The UK’s blue-chip index climbed by nearly 164 points to 9,848, following the bigger-than-expected drop in UK inflation.

Joshua Mahony of Scope Markets said:

Coming off the back of a jobs report that saw a higher unemployment rate, lower employment count, and higher claimants, markets can not only look forward to a rate cut but also a likely dovish tone from the Bank of England tomorrow.

While markets are currently pricing a mere 50% chance that we see either 25bp or 50bp worth of cuts next year, the deterioration in the jobs market coupled with falling inflation could help raise hopes of a more accommodative BoE than has been predicted.

Germany’s Dax edged 0.1% higher while France’s CAC was flat, Italy’s FTSE MiB rose by 0.6% and Spain’s Ibex rose 0.3%.

Oil prices have jumped after Donald Trump ordered “a total and complete” blockade of sanctioned Venezuelan oil tankers, building on the recent moves to stifle the movement of crude through the region.

Brent crude rose by $1.3 to $60.25 a barrel, a 2.3% gain. This comes after a 5% drop in oil prices this week as traders were encouraged by apparent progress on a Russia-Ukraine peace deal.

Mahony said:

With the president having recently laid out a strategy that focuses primarily on controlling business interests within the Western Hemisphere, this is a clear move to end the trade of cheap, sanctioned oil from South America to the likes of China. While yesterday had seen WTI [West Texas Intermediate] fall into the lowest level in almost five years, the potential implications of a Russia-Ukraine deal have today been overshadowed by the news that Trump has taken further steps to limit Venezuelan exports.

UK house prices rose at a slower annual rate in October, while rent increases also slowed, according to official figures.

The average price of a home increased by 1.7% to £270,000 in the 12 months to October, down from 2% in the 12 months to September.

The average private rent rose by 4.4% to £1,366 in the 12 months to November, down from 5% in the 12 months to October. Rent increases have slowed for 11 months, after high rates in recent years fuelled by a shortage of rental properties and strong demand from tenants.

Douglas Alexander, the UK government’s Scottish secretary, has said the £120m deal to save Ineos’s ethylene plant at Grangemouth was possible because Ineos had previously invested around £100m upgrading the facility, our Scotland editor Severin Carrell reports.

Speaking on BBC Radio Scotland this morning, he contrasted that with the decision by ExxonMobil to close its ethylene plant at Mossmorran in Fife early next year, with the loss of around 430 jobs.

ExxonMobil’s chairman Paul Greenwood has defended the closure, claiming that the UK’s windfall taxes on North Sea oil and gas operators, and higher emissions taxes, meant Mossmorran had no future. “My international competitors do not have those costs,” he said last week.

The Ineos deal, which will be managed by NatWest on behalf of the UK government, will be formally announced by the chancellor Rachel Reeves, the UK business secretary Peter Kyle and Alexander later this morning.

Alexander told BBC Radio Scotland ExxonMobil’s past decision-making at Mossmorran was in “stark contrast” to the dialogue the government had enjoyed with Ineos.

When we sat down with Jim Ratcliffe it was pretty clear what was needed in order to be able to deliver a future for the chemical facility in Grangemouth. There had been significant Ineos investment in the plant.

In contrast, the Mossmorran facility is now 40 years old, it was built to have a 20 year lifecycle. Alas, there hasn’t been the scale of investment that many of us would wished to see in Mossmorran over recent years.

The management were not able to give us a pathway to profitability.

Gillian Martin, the Scottish government’s cabinet secretary for climate action and energy, welcomed the UK government’s move.

The Scottish government has been calling upon UK government for months now to intervene to protect jobs at Grangemouth and Mossmorran at a scale seen in other parts of the UK. This news will give a much-needed boost to Grangemouth community and the workers at Ineos O&P.

The Scottish government announced £8.5m investment last week at the Grangemouth industrial cluster including in MiAlgae and Celtic Renewables which will create up to 460 jobs, demonstrating that a long term industrial future at the site is achievable. We will continue to do all we can, within our limited powers, to achieve that.

Sharon Graham, the general secretary of the union Unite, which represents hundreds of oil and chemicals industry workers, also welcomed the decision, but said it “must not be a one-off”.

Many promises have been made in the past. This needs to be the start of a new direction of travel. We cannot forget that Grangemouth is also the site where this government has allowed Scotland’s only refinery to close, rather than produce much needed sustainable aviation fuel.

There has to be a joined-up strategy for a workers’ transition, backed by investment. British industry must be backed in a much better way, or jobs and skills will continue to go.

Sentiment among businesses in Germany has worsened again.

The business climate index from the Munich-based Ifo institute fell to 87.6 points in December, from 88 points in November. Analysts polled by Reuters had forecast an increase to 88.2.

Companies are more pessimistic about the first half of 2026. “The year is ending without any sense of optimism,” the institute said.

Germany has struggled to regain momentum this year, with only modest growth forecast following two years of economic contraction.

Klaus Wohlrabe, head of surveys at the institute, said:

This year there are no presents for the German economy.

The manufacturing index fell, with almost all sectors affected. The number of new orders declined, and companies are planning to scale back production.

In the service sector, confidence has fallen back into negative territory, across almost all service sectors. The only exception was restaurants, which reported a very strong December.

In trade, the index also worsened, as retailers were unhappy with Christmas sales.

In construction, the business climate remained unchanged at a low level.Companies assessed the current situation as worse, but were less sceptical about the coming months.

Oil prices have risen as much as 1.5%, after Donald Trump ordered “a total and complete” blockade of all sanctioned oil tankers entering and leaving Venezuela.

Brent crude rose by 1.5% to $59.79 a barrel earlier, and is now trading up 1.1% at $59.54 a barrel. US West Texas Intermediate Crude climbed by 1.5% to $56.12 a barrel, and is now 1.2% higher at $55.93 a barrel.

This comes a day after oil prices traded near five-year lows on progress in the Russia-Ukraine peace talks. A deal could mean that western sanctions on Moscow are eased, leading to more oil supply.

A trader told Reuters:

The price is sentiment-driven by the Venezuelan news for today, but overall, export volumes from Venezuela are relatively small in the global supply share. With all eyes on the Russia-Ukraine discussions, the market is still under downside risk.

Trump’s moves have ramped up pressure on Venezuela’s authoritarian leader Nicolás Maduro.

Last week, US forces seized an oil tanker off Venezuela’s coast that was traveling across the Caribbean. The tanker was thought to be loaded with about 2m barrels of Venezuela’s heavy crude, according to the New York Times. The Venezuelan government accused the US of “blatant theft” and described the seizure as “an act of international piracy”, further heightening tensions between the two countries.

Despite some lower food prices in the official inflation figures, the cost of Christmas dinner and festive treats has gone up, a survey shows.

Shoppers are paying up to 70% more for Christmas chocolate treats compared with last year, while the price of a turkey has jumped by as much as £15, according to the consumer champion Which?.

The group analysed a range of ingredients for a typical Christmas dinner, as well as other typical festive treats including mince pies, sparkling wine and chocolates.

Festive chocolate had the steepest mark-up this year. Among the biggest risers was a Lindt Lindor milk chocolate truffles treat box at Asda up 72% to £1.98 compared with £1.15 last year. At Morrisons, Lindt Milk Chocolate Teddy Christmas tree decorations increased from £3.50 in 2024 to £6 in 2025, up 71%.

The pound has fallen against the dollar, as an interest rate cut tomorrow looks more likely.

Sterling has fallen by 0.67% to $1.3343, its lowest level in a week, and is set for its biggest one-day drop since early November. Yields on UK government bonds fell sharply across maturities. The FTSE 100 index rose by 1%.

Markets now see a 98.8% chance of a rate reduction at the end of the Bank of England’s meeting at noon tomorrow, from 4% to 3.75%. Before the data, the probability of a rate cut was 90%.

Investors are now betting on 66 basis points of cuts by next December, up from 58bps before the inflation figures.

An interest rate cut tomorrow is certain following the notable drop in inflation in November, economists say.

Suren Thiru, economics director of the Institute of Chartered Accountants in England and Wales, said:

While the financial squeeze on households and businesses remains severe, these figures offer reassurance that the UK is moving towards a more modest inflation environment, helped by lower food prices.

Softening services and core inflation offer hope that underlying price pressures are becoming less sticky. The growing downward pressure from a loosening labour market and wilting economy should help keep it on a downward path.

UK inflation’s journey back to target should accelerate appreciably in 2026 with lower food and fuel costs alongside the energy bill changes announced in the Budget likely to pull it back to 2% by next summer.

These figures, alongside the recent deluge of downbeat data, mean that an interest rate cut tomorrow looks certain. The vote split could be more dovish than many expect as policymakers will have now assessed the budget’s deflationary impact.

Good morning and welcome to our rolling coverage of business, the financial markets and the world economy.

Inflation in the UK slowed more than expected last month because of easing food prices, marking the third month that inflation has fallen.

Inflation, measured by the consumer prices index, fell to an annual rate of 3.2% in November, from 3.6% in December, according to the Office for National Statistics.

The core rate, which strips out volatile food and energy costs, dropped to 3.2% from 3.4%.

Grant Fitzner, the ONS chief economist, said:

Inflation fell notably in November to its lowest annual rate since March. Lower food prices, which traditionally rise at this time of the year, were the main driver of the fall with decreases seen particularly for cakes, biscuits, and breakfast cereals,

Jim Ratcliffe’s chemicals company Ineos has been granted £120m of government funding to help save the UK’s last ethylene plant at Grangemouth, in a deal expected to protect more than 500 jobs.

The investment in the Scottish plant was necessary to preserve a vital part of the country’s chemicals infrastructure, the UK government said. The ethylene produced there was essential for medical-grade plastics production, water treatment and in aerospace and car-building, it added.

The Agenda

• 9am GMT: Germany Ifo business climate index

• 9.30am GMT: UK House prices

• 11am GMT: UK CBI Industrial trends survey