UK stocks rebound on banking gains ahead of BoE rate cut call

Dec 17 (Reuters) - The UK's stock market indexes rebounded on Wednesday, led by gains in heavyweight banks, as lower-than-expected domestic inflation reinforced expectations that the Bank of England will cut interest rates.

The UK's blue-chip FTSE 100 .FTSE rose 1.7% by 1032 GMT — on pace for its best day since April 14. Sharp declines in energy and defence stocks had pushed the benchmark index lower on Tuesday.

The midcap FTSE 250 .FTMC index added 1% to hit a near-seven-week high.

British inflation fell sharper than expected to 3.2% in November from 3.6% in October, its lowest level since March, amplifying hopes of a rate cut by the BoE on Thursday.

The surprise decline, driven by lower food prices and Black Friday discounts, sent the sterling lower and increased odds of more rate cuts in 2026.

The FTSE 350 index tracking banks .FTNMX301010 led gains, up 2.9%, the highest level since 2008. HSBC Holdings HSBA.L was up 3.8%, with traders pointing to a brokerage upgrade. Standard Chartered STAN.L and Barclays BARC.L added 2.2% and 2.3% respectively.

Energy stocks .FTNMX601010 jumped 2.5% after a sharp decline in the previous session, buoyed by soaring oil prices after U.S. President Donald Trump ordered a complete blockade of all sanctioned oil tankers entering and leaving Venezuela.

Industrial metal miners .FTNMX551020 surged 2.4%.

The day's moves kept the FTSE 100 on track for its best year since 2009, climbing 20.5% year-to-date and outpacing Wall Street's benchmark S&P 500 index .SPX, which has risen 15.6% this year.

Among individual stocks, outsourcing firm Serco's SRP.L shares jumped 5.6% to surpass a decade high after the company forecasted profit above analyst expectations for this year and the next.

Business supplies distributor Bunzl BNZL.L lost 2.8%, becoming the top loser on the FTSE 100 index, after the company forecast a slight year-on-year drop in its 2026 operating margin.