Britain’s domestically-focused stocks reached a two-year peak as traders increased their expectations for the Bank of England to lower interest rates for the first time in four years.

The FTSE 250 index, which tracks midcap stocks, climbed 0.6% to 21,486.01, marking its highest point since February 2022, driven by growing optimism in financial markets.

Similarly, the FTSE 100 hit its highest level in two months, buoyed by derivatives trading that suggests a 56% probability of an interest rate cut, despite recent data indicating persistent inflation in the services sector.

The Bank of England has maintained interest rates at a 16-year high of 5.25% since August last year in its efforts to control inflation, which has now reverted to its 2% target.

Global markets were positive today, with Asian stocks rising and tech shares on Wall Street rebounding on Friday, following a US inflation report that supported expectations for a rate cut in America this September.

The number of mortgage approvals by lenders held steady last month in a sign the UK’s housing market is stabilising after being hit by high interest rates.

There were 60,000 new mortgages approved in June, according to the Bank of England, down just a fraction from the 60,100 given the green light in May.

Borrowers took on £2.7bn of mortgage debt during the month, up from £1.3 billion in May.