* FTSE 100 up 1.5 pct
* Investors count on rate cuts after grim inflation report
* Defensive stocks forge higher
By Rebekah Curtis
LONDON, Nov 12 (Reuters) - Britain's FTSE 100 <> gained
1.5 percent by midday on Wednesday as defensives forged higher
and a grim inflation report from the Bank of England spurred
investors' hopes of seeing further interest rate cuts.
At 1130 GMT, the FTSE 100 was up 63.1 points at 4,309.79
points. The index fell 3.6 percent on Tuesday as investors faced
with a global economic slowdown continued to dump stocks.
The British economy will shrink sharply next year and
inflation could fall to just below 1 percent in two years, the
Bank of England predicted on Wednesday in its gloomiest set of
forecasts in more than a decade and after it cut interest rates
by 1.5 percentage points last week.
"There is confidence over the sense that is coming from the
lips of the government of the Bank of England," said Howard
Wheeldon, senior strategist at BGC Partners.
"There is confidence about how the bank is going to
react...Clearly interest rates are going to fall further."
The report showed inflation would also be below 1 percent if
rates stayed at the current 3 percent level, leaving the door
open for further rate cuts in the coming months. The BoE
expected GDP to fall next year.
Among defensives, pharmaceuticals GlaxoSmithKline <GSK.L>,
AstraZeneca <AZN.L> and Shire <SHP.L> put on between 1.6 and 3.8
percent.
"Defensives are the order of the day, particularly whilst
the economic news flow takes its negative natural course,"
Wheeldon added.
Tobacco groups Imperial Tobacco <IMT.L> and British American
Tobacco <BATS.L> both added more than 3 percent, with BAT helped
by a Goldman Sachs upgrade.
Index heavyweight Vodafone <VOD.L>, which put on 7.9 percent
following yesterday's results, also helped to drive the blue
chip index higher.
UNEMPLOYMENT WOES
Other official data on Wednesday showed British unemployment
rose to its highest level in more than a decade in the three
months to September as the economy tips into recession.
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Scottish & Southern Energy <SSE.L> gained 4.6 percent after
it reported first-half results in line with expectations,
despite a 54.5 percent fall in profits due to high wholesale
prices and disappointing power station performance.
The group forecast modest full-year growth and raised its
interim dividend by 9.4 percent to 19.8 pence per share.
"First-half results were in line with consensus estimates,
while the reiteration of expected modest full-year growth should
reassure," Dresdner Kleinwort said in a note.
Banks moved higher, with HBOS <HBOS.L> rising 2 percent,
Lloyds TSB <LLOY.L> up 3 percent and HSBC <HSBA.L> up 0.5
percent.
Oil gas and mining engineer AMEC <AMEC.L> put on 2.6 percent
after it said it was confident of delivering a margin in excess
of 6.5 percent this year as it saw continued strength in demand
for its services.
BP <BP.L>, Marks & Spencer <MKS.L> and Bunzl <BNZL.L> all
fell as they traded ex-dividend.
J. Sainsbury <SBRY.L> rose 4.9 percent after the grocer
posted first-half profit towards the top end of forecasts as it
lured cash-strapped shoppers away from upmarket rivals with
promotions and a big push in own-brand goods.
Miners were among the biggest losers, as metals prices slid
further on demand worries. Anglo American <AAL.L> lost 2.1
percent while ENRC <ENRC.L> fell 8.2 percent after it issued a
cautious trading update.
Man Group <EMG.L> was the biggest FTSE 100 loser, following
heavy losses the previous session, falling 11.5 percent after
Citi downgraded the hedge fund group to hold from buy.
(Editing by Victoria Bryan)
