The FTSE 100 rallied 1.3% as the UK stock market followed an overnight rebound on Wall Street after the US Federal Reserve hiked interest rates by 0.5% but ruled out a bigger rise in its battle against inflation.

The blue-chip index gained 99 points to trade at 7,592 on expectations that the Bank of England will increase the base rate to 1% for the first time in 13 years today, marking its fourth straight rate rise.

Neil Wilson, an analyst at Markets.com, said Bank governor Andrew Bailey is worried about persistently high inflation, which is running at 7%, its highest level in three decades.

‘Despite worries about slowing growth, a tight labour market gives the Bank room to raise rates for the fourth straight meeting,’ said Wilson.

‘Moreover, the Bank has a credibility problem around inflation so it needs to act.’

The mood music was set by the Fed as it hiked its funds rate by 0.5%, its biggest move since 2000, and announced it would start to wind down its quantitative easing programme, which has seen it buy $9tn of bonds and other assets since the 2008 financial crisis.

Fed chair Jerome Powell delighted nervous markets by explicitly ruling out a 0.75% hike: the S&P 500 jumped 3% and the Nasdaq tech index 3.2%.

‘We continue to think that, ultimately, the Fed will hike less than market expectations, but for now the hawkish stance is likely to remain intact given the strong state of the labour market and inflationary dynamics,’ said Salman Ahmed, global head of macro and strategic allocation at Fidelity.

‘The Fed committed a policy mistake last year by letting inflation run out of control, and as a result, it could be walking a narrow road for some time as it looks to balance the tightening path without creating an accidental recession.’

US-weighted investment trusts leapt on hopes a self-induced recession in the world’s largest economy could be avoided. Global growth flagship Scottish Mortgage (SMT ) gained 3.6% to 913p, with similar rises from Polar Capital Technology (PCT ), JPMorgan American (JAM ) and private equity fund HgCapital (HGT ), while Blackrock World Mining (BRWM ) enjoyed an advance in mining stocks, up 4.6% at 724p.

Packaging firm Mondi (MNDI) soared 8.2%, or 123p, at £16.25 after announcing the sale of its operations in Russia, which represent 12% of its revenue and generated 20% of underlying earnings over the last three years.

Endeavour Mining (EDV) climbed 7.2%, or 141p, to £20.82 despite reporting a net loss of $57m for the first quarter. It has reduced its losses year-on-year and said it was on track to meet its 2022 guidance. Mining peers were pulled higher, with Anglo American (AAL) up 4.9% at £36.81, Fresnillo (FRES) up 3.6% at 794p, and Glencore (GLEN) up 3.1% at 497p.

Hikma Pharmaceuticals (HIK) was a notable faller, down 10.4% at £16.60 after it cut 2022 guidance for its generics business.

The FTSE 250 also made widespread gains, up 1.3%, or 264 points, at 20,483 led by PureTech (PTC), which leapt 9.2% at 183p after the biotech company announced a share buyback programme of up to $50m.

Morgan Advanced Materials (MGAM) motored 6.5% to 291p as it reported sales were up 11% in the first quarter and a strong start to the year supports its expectations for 2022.

Reits roll with inflation

In other investment trust news, Alternative Income Reit (AIRE ) rose 3.1% to 79.8p on a 17% discount after notching up a first quarter total investment return of 4.8% driven by property refurbishments and annual index-linked rent increases.

Target Healthcare Reit (THRL ) gained 2.2% to 111.6p as a 34% increase in first quarter earnings pushed the 6%-yielder closer to full dividend cover.

Keystone Positive Change (KPC ) advanced 2.7% to 226p on an 11% discount as Baillie Gifford fund managers Kate Fox and Lee Qian said they were focused on long-term returns as half year results showed the portfolio of sustainable stocks slumped 19% in the growth selloff in the six months to 31 March, underperforming the MSCI All Country World index which gained 3.6%.