THE pound surged and the FTSE 100 leapt back above the 7000 mark as inflation hit its highest level in nearly two years.
Sterling rose more than 1.1 per cent to 1.23 US dollars and 1.0 per cent to 1.03 euros.
Equity markets also made gains, with the FTSE 100 closing 0.8 per cent or 52.5 points higher at 7000 points.
It comes after data showed consumer prices index inflation jumped to one per cent last month, up from 0.6 per cent in August, marking the highest inflation rate since November 2014.
However, the Office for National Statistics (ONS) said there was "no explicit evidence" that sterling's near 20 per cent slump since the Brexit vote had impacted prices.
Sterling's woes since the Brexit vote were in sharp focus among stocks, with airline Ryanair blaming the pound's slump as it warned over profits, while luxury fashion firm Burberry was enjoying contrasting fortunes thanks to a surge in spending by overseas tourists in the UK.
However, Ryanair shares shrugged off the Irish carrier's move to cut its annual earnings forecast by five per cent, with its Irish-listed shares closing 4.9 per cent or €0.5 euros higher at €12.39.
Rival easyJet was also flying high despite more bad news from the industry, with shares rising 5.1per cent or 44.5p to 918p, making it one of the biggest gainers on the blue-chip index.
Across Europe, the French Cac 40 and German Dax closed higher, rising 1.3 per cent and 1.2 per cent, respectively.
A rising US dollar knocked oil prices, with Brent crude reversing earlier gains to trade lower by over 0.5 per cent at 51.36 US dollars.
A stronger greenback makes dollar-denominated crude more expensive for overseas investors.
Meanwhile, Burberry dragged on the FTSE 100, with shares dropping 7.2 per cent or 109p to 1403p despite revealing that UK sales rocketed by more than 30 per cent in its second quarter due to a luxury shopping spree sparked by the plunging pound.
However, wholesale sales were still deep in the red, down 14 per cent on an underlying basis in the first half.
Online retailer Asos also took a major hit, dropping 471p to 4861p, despite reporting pre-tax profits of £63.7 million, up 37 per cent compared to last year. Sales grew 26 per cent to £1.4 billion, helped by a 50 per cent rise in US revenue.
Ladbrokes shares rose by 2.5p to 140.4p after reporting a 12.1 per cent jump in net revenue in three months to the end of September, boosted in part by the European Championships. Shares also rose as Ladbrokes and Gala Coral moved one step closer to sealing their £2.3bn merger.
Sector peer William Hill closed relatively flat at 304.6p after the betting company and Canadian poker firm Amaya called time on talks over a potential £4.6bn merger, following negative feedback from shareholders.
The biggest gainers on the FTSE 100 were Next up 240p at 4744p, EasyJet up 44.5p at 918p, Marks and Spencer Group up 13.8p at 333.7p, and Royal Bank of Scotland Group up 7.2p at 177.6p.
The biggest losers on the FTSE 100 were Burberry down 109p at 1403p, Pearson down 17.5p at 745p, Rolls-Royce Holdings down 12.5p at 761p, and Johnson Matthey down 33p at 3456p.
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