THE London market rebounded yesterday amid hopes of a recovery in the eurozone and a slowdown in domestic price rises.

The FTSE 100 Index closed up 37.6 points at 6611.9 after figures from the single currency area heralded hopes Britain’s biggest trading partner may finally be emerging from recession.

Economic sentiment in Germany rose to a fourmonth high – although separate survey data showed eurozone industrial production up by a disappointing 0.7 per cent.

Germany’s Dax and France’s Cac 40 were both up on the latest figures, ahead of crucial eurozone GDP figures due out today which could show a return to growth in the second quarter.

In the UK, the dip in inflation to 2.8 per cent in July from 2.9 per cent in June was in line with expectations, with economists pointing to more falls in the cost of goods and services in coming months. Sharp discounting by fashion retailers helped offset higher prices at the fuel pumps.

The rise in the cost of living figure has taken on added significance since it was linked to the Bank of England’s new “forward guidance” policy.

The likelihood of a future spike in inflation would result in a knockout to the pledge to keep interest rates at a 0.5 per cent low until unemployment has fallen below seven per cent.

Alpari analyst Craig Erlam said: “There’s going to be a lot more attention paid to this figure now that new Bank of England Governor Mark Carney has set an inflation threshold for forward guidance to remain in place.

“Based on today’s figure, it looks like inflation remains well anchored and there’s little threat in the short term of interest rates being reviewed.”

On the currency markets, the pound was flat against the dollar at 1.55 but weaker UK inflation saw it gain strongly on the euro to 1.17.

In a light session for corporate news, insurance company Resolution, which owns a number of closed life funds, was one of the biggest risers in the top flight after it reported a 17 per cent rise in half-year operating profits to £191m.

The figure was ahead of the market consensus, while the company also said it was confident in further progress over the remainder of the year as it targets Britain’s ageing population.

Shares were 5.8p higher at 329.5p