UK stocks end higher as banks, home builders lead rally ahead of BoE rate decision

Dec 17 (Reuters) - UK stocks closed higher on Wednesday, led by gains in home builders and bank shares, 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 closed up 0.9%, rebounding after losses in the previous session. The midcap FTSE 250 .FTMC index added 0.56% at close.

British inflation fell more sharply 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 sterling down 0.25% against the dollar and increased odds of more rate cuts in 2026.

The FTSE 350 index of household goods and home construction stocks .FTNMX402020 led gains, up 2.5%, helped by the expected rate cuts by the BoE.

Banks .FTNMX301010 followed with a 1.9% rise, reaching their highest level since 2008. HSBC HSBA.L was up 2.4%, with traders pointing to a brokerage upgrade, while Barclays BARC.L added 1.7%.

Medical equipment and services stocks .FTNMX201020 were among the top gainers, up 1.9%.

Energy stocks .FTNMX601010 jumped 1% after a sharp decline in the previous session, buoyed by elevated oil prices after U.S. President Donald Trump ordered a complete blockade of all sanctioned oil tankers entering and leaving Venezuela.

The day's moves kept the FTSE 100 on track for its best year since 2009, climbing 19.6% year-to-date and outpacing Wall Street's benchmark S&P 500 index .SPX, which has risen 16.6% this year so far.

Among individual stocks, outsourcing firm Serco's SRP.L shares jumped 7.4% to surpass a decade high after the company forecasted profit above analyst expectations for this year and the next.