The FTSE 100 (^FTSE) touched a one-month high on Friday as the UK economy grew 2.3% in April, the fastest rise since July 2020.
The figure, which follows strong growth of 2.1% in March, was slightly above Reuters poll consensus for a 2.2% increase as non-essential shops and outdoor hospitality reopened to the public after months of lockdown.
The services sector provided the biggest boost to the British economy, with output growing 3.4% during the month. However overall output remains 3.7% below the pre-pandemic levels seen in February last year.
Output in the production sector fell by 1.3% in April 2021, the first fall since January 2021 as three of the four sectors contracted.
London's benchmark index climbed more than 0.7% to its highest since 10 May, when it touched its highest level since the pandemic began. It ended 0.65% higher on the day.
“Today’s figures are a promising sign that our economy is beginning to recover,” chancellor Rishi Sunak said.
“With more than a million people coming off furlough across March and April and the number of employees in work rising, it is clear that our Plan for Jobs is working.
“But I know there are people who still need our support, which is why the furlough scheme is in place until September to protect as many jobs as possible, and schemes like Kickstart will continue to create jobs for young people, as we look to build the economy of the future.”
The muted mood on Wall Street followed a rally on Thursday where stocks climbed to record highs despite US inflation rising to 5% year-on-year in May, the highest since 2008.
The jump was bigger than expected – CPI was forecast to rise to a 13-year high of 4.7% from a year earlier, up from 4.2% in April, which was already the fastest rise since September 2008.
Core inflation, which strips out volatile items such as food and energy, jumped to 3.8% year-on-year, the fastest annual rate since June 1992.
Richard Hunter, head of markets at Interactive Investor, said: “Investors shrugged off a higher than expected inflation print having taken a good look underneath the bonnet.
“The current indications are that inflationary pressures are likely to subside in the second half of the year and increasingly investors are beginning to warm to the Federal Reserve’s narrative of the current elevated levels being transitory.”
Asian stocks were mixed on Friday after a rally in US shares and treasuries on hopes that a jump in inflation is likely to be transitory, leaving scope for ongoing central-bank support.
Watch: What is inflation and why it is important?