Markets on the rise ahead of crisis talks

The benchmark FTSE 100 index advanced more than 30 points to close at 5,350.58 – a gain of 0.6 per cent – as French president Nicolas Sarkozy prepared to meet Germany’s chancellor Angela Merkel in Paris.

Analysts from RBS believe the outcome of the meeting could be key to dictating near-term prospects for markets. “We see a major valuation opportunity if Europe’s politicians can soothe investors’ sovereign fears,” they said in a note.

Despite continuing concerns over the debt crisis, markets in London and the US had reacted positively to Google’s £7.7 billion deal to acquire Motorola’s handset business and better news on Japan’s earthquake-ravaged economy.

As well as the outcome of the crunch eurozone talks to digest, UK investors will today have the latest inflation figures to consider with statistics for last month expected to underline the pressure on already-stretched household budgets.

The consumer price index rate of inflation is set to rise to about 4.4 per cent in July – more than twice the Bank of England’s 2 per cent target – after a short-lived decline to 4.2 per cent in June.

Central bank governor Sir Mervyn King will be forced to write his seventh successive letter to Chancellor George Osborne, and his 12th in total, to explain why inflation remains so far above target.

The Bank has forecast inflation hitting 5 per cent by the end of the year as steep rises in electricity and gas prices come into effect. With the UK facing a period of continued sluggish growth, rate-setters expect inflation to fall below the 2 per cent target to 1.8 per cent in two years’ time, particularly as the impact of this year’s VAT increase falls out.

Lower food and petrol prices are expected to limit the rise this month with recent data from the British Retail Consortium showing prices fell by 0.6 per cent in July from June.