British mid-cap stocks close at over two-year high on earnings optimism

(Reuters) -British mid-cap stocks rallied to their strongest finish in more than two years on Friday, helped by a slew of upbeat company earnings reports and a rebound on Wall Street following benign U.S. inflation data.

The FTSE 250 index of domestically oriented UK stocks closed up 2.3% at its highest level since March 2022, while the blue-chip FTSE 100 rose 1.2% to close at a two-month high.

The global mood improved as tech shares bounced back on Wall Street and a largely in-line U.S. inflation report kept intact bets for a September interest rate cut by the Federal Reserve.

Meanwhile, the Bank of England's first interest rate cut since 2020 hangs in the balance next week after recent higher-than-expected British services prices data, with traders pricing in a 50% chance of a quarter-point rate cut on Aug. 1.

Among notable movers on the FTSE 100, NatWest shares jumped 7% to a near decade high as it raised its outlook and snapped up a 2.4-billion pound ($3.1 billion) mortgage book from Metro Bank.

"The company is feeling confident to go on the offensive," said AJ Bell head of financial analysis Danni Hewson.

Boosting mid-cap stocks, Drax Group surged nearly 14% after the power generator posted higher first-half profit and said it expected annual profit to be at the top-end of market expectations.

Babcock International climbed 8.6% after the defence engineering company maintained its full-year forecast, while Jupiter Fund Management rose 6.8% after the company reported forecast-beating profit.

(Reporting by Purvi Agarwal and Sruthi Shankar in Bengaluru; Editing by Sonia Cheema and Emelia Sithole-Matarise)