Consumer price inflation (CPI) eased unexpectedly in May to its lowest in two and a half years due to slower price rises for food and fuel.
The FTSE 100 index closed up 95.22 points, or 1.7 per cent at 5,586.31, just below the 5,600 level which was breached briefly late afternoon for the first time since he start of May.
Investors were also betting on hopes that a US Federal Reserve policy meeting will sanction fresh stimulus measures at their two day meeting, concluding today.
Heavyweight energy stocks, miners and banks were the top performing blue chip sectors, lending their strength to the index as investors bought on hopes of a liquidity boost.
Drugmakers were also in demand. AstraZeneca gained 2.9 per cent as broker Liberum Capital suggested a merger of equals with AbbVie, due to be spun off from parent Abbott Laboratories, could generate some $4bn of synergies.
Whitbread topped the FTSE 100 leader board, up 6.4 per cent after the leisure group reported solid growth in first-quarter sales, boosted by a strong performance from its coffee shop chain, Costa.