European Stocks Advance as UK Shares Jump on Slowing Inflation

UK and European shares gained as British inflation fell below 8% for the first time in more than a year, boosting sentiment.

(Bloomberg) — UK and European shares gained as British inflation fell below 8% for the first time in more than a year, boosting sentiment.

The Consumer Prices Index in the UK was 7.9% higher than a year ago in June, a sharp drop from the 8.7% reading in May, the Office for National Statistics said Wednesday. Economists had expected a decline to 8.2%. 

The FTSE 100 Index advanced 1.8% to its highest level in a month. The inflation data revived speculation about how many more rate hikes the Bank of England will deliver to contain prices. The more domestically-focused FTSE 250 Index rose 3.8%, the most since November. Across Europe, the Stoxx 600 Index was 0.3% higher, with real estate and energy outperforming, while basic resources and media declined.

As traders pared bets on further interest rate hikes by the Bank of England, UK homebuilders rallied. The FTSE 350 household goods and construction index jumped 7%, the most since 2008. Leading gainers included Redrow, Crest Nicholson and Persimmon.

“The strength in the pound was due to higher inflation pushing rates expectations up and growth expectations down,” said Barclays strategist Emmanuel Cau. “So today’s weaker-than-expected inflation print is arguably a relief, which should lift sentiment on the depressed domestic plays and rates plays. Investors are very bearish on UK and under exposed, so short covering may be powerful.” 

However, while inflation is coming down, the Bank of England is lagging other major central banks including the Federal Reserve and European Central Bank in bringing it under control. Further policy tightening still risks sending the UK economy into a recession.

In the euro-area, underlying inflation accelerated more than initially reported in June, cementing the European Central Bank interest-rate increase widely expected next week. Core consumer prices rose 5.5% from a year earlier, compared with a preliminary estimate of 5.4% and a reading of 5.3% in May.

Among individual movers, Rio Tinto Group dropped as the world’s biggest iron ore producer said second-quarter shipments of iron ore fell 1% from a year earlier.

‘Positive Catalyst’

Markets in Europe are off to a slower start in July, after advancing in the first half of the year. Investors are weighing economic growth and central bank tightening against a positive start to earnings season.

“Corporates results should be a positive catalyst for equities, which could see another leg up, but we remain underweight on stocks as valuations have gone too high,” said Miguel Angel Rico, chief investment officer at Creand AM. “We see a mild recession ahead, while markets are not pricing in any of it. Central banks will stick to their message as inflation remains uncomfortably high.”

For more on equity markets:

  • Inflation Can’t Slow Fast Enough for UK Equities: Taking Stock
  • M&A Watch Europe: Covestro, Adnoc, National Grid, Nordea, Argenx
  • Novartis Pursues Sandoz Spinoff as IPOs Languish: ECM Watch
  • US Stock Futures Unchanged; Aqua Metals, Amarin Fall

You want more news on this market? Click here for a curated First Word channel of actionable news from Bloomberg and select sources. It can be customized to your preferences by clicking into Actions on the toolbar or hitting the HELP key for assistance. To subscribe to a daily list of European analyst rating changes, click here.

–With assistance from Sagarika Jaisinghani.

More stories like this are available on

©2023 Bloomberg L.P.