Fall in UK inflation boosts European shares

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European shares rose on Wednesday as UK inflation fell faster than expected, fueling investor hopes that central banks could soon end their historic tightening campaign.

Europe’s region-wide Stoxx 600 added 0.5 percent at the opening bell, extending gains from the previous session, while France’s CAC 40 rose 0.7 percent and Germany’s DAX 0.5 percent.

London’s FTSE 100 rose 0.9 percent, leading the sector, after official data showed UK inflation slowed beyond analysts’ expectations, giving the Bank of England some respite ahead of its next monetary policy decision in August .

Britain’s annual consumer price inflation eased to 7.9 percent in June from 8.7 percent in the previous month, the Office for National Statistics said, below the 8.2 percent forecast by economists polled by Reuters.

The reading ended a four-month series of UK price rise readings that were higher than forecast, easing pressure on BOE policymakers who had already raised interest rates to 5 percent, their highest since 2008. It was his highest level since.

“We finally got the much needed and long awaited relief in UK inflation, which will be a huge relief for both policymakers and the government,” said Jamie Dutta, market analyst at Vantage.

The data came a week after lower-than-expected US inflation boosted global markets.

The FTSE 100 index of the largest companies listed in London has lagged far behind its peers in the sector since the start of the year, as investors worry that price pressures in the UK could force the central bank to keep interest rates high for longer. Will do

But Wednesday’s inflation reading made it more likely that the BOE monetary policy committee will raise rates by 0.25 percentage points rather than 0.5 percentage points at its next meeting in August.

“A slowing CPI is not enough to warrant a change in print policy. But (BOE governor) Andrew Bailey and his team will hope this is the start of a trend,” said Chris Beauchamp, chief market analyst at IG Group.

The pound fell 0.68 per cent to trade at $1.2943 against the dollar following the release of the data – its lowest level in a week.

The rally in European equities was also helped by comments from European Central Bank Governing Council member Klaus Knott, who said on Tuesday that it was not certain whether the ECB would continue to raise interest rates after its policy meeting next week.

The yield on policy-sensitive two-year German government bonds fell 0.07 percentage points to 3.1 percent on Wednesday, while the yield on 10-year bonds, a regional benchmark, fell 0.05 percentage points to 2.29 percent.

Meanwhile, the contract tracking Wall Street’s S&P 500 and the contract tracking the tech-focused Nasdaq 100 were both flat ahead of the New York open.

Asian shares declined as China’s stalled economic recovery and slow implementation of stimulus measures by the government weighed on market sentiment. The Hang Seng index dropped 1.2 per cent, while China’s blue-chip CSI 300 index slipped 0.4 per cent.