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European stocks rose on Wednesday, as a faster-than-expected decline in UK inflation raised investors’ hopes that central banks may soon end their historic tightening campaigns.
The Stoxx 600 index in the European region added 0.5 percent at the opening bell, extending its gains from the previous session, while the French Cac 40 index added 0.7 percent and the German Dax index rose 0.5 percent.
London’s FTSE 100 rose 0.9 percent, leading gains in the region, after official data showed that UK inflation slowed more than analysts expected, giving the Bank of England some relief ahead of its next monetary policy decision in August.
The Office for National Statistics said annual UK consumer price inflation eased to 7.9 percent in June from 8.7 percent in the previous month, below the 8.2 percent forecast of economists polled by Reuters.
The reading ended a four-month run of UK price growth readings that beat expectations, relieving pressure on Bank of England policymakers who have already raised interest rates to 5 percent, their highest since 2008.
“We have finally had the much-anticipated and long-awaited lull in inflation in the UK, which will come as a huge relief for both policymakers and the government,” said Jamie Dutta, market analyst at Vantage.
The figures come a week after slower-than-expected US inflation gave a boost to global markets.
The FTSE 100 index of the largest London-listed companies has lagged behind its regional peers since the start of the year, as investors worried that persistent price pressures in the UK would force the central bank to keep interest rates higher for longer.
But Wednesday’s inflation reading made it more likely that the Bank of England’s Monetary Policy Committee will raise interest rates by 0.25 percentage point at its next meeting in August, rather than another 0.5 percentage point increase.
“One slower CPI printing is not enough to trigger a policy change. But (BoE Governor) Andrew Bailey and his team are hopeful that this is the beginning of a trend,” said Chris Beauchamp, senior market analyst at IG Group.
The British pound fell 0.68 percent against the dollar, and was trading at $1.2943 after the data was released – its lowest level in a week.
The rally in European stocks was also helped by comments from European Central Bank (ECB) Governing Council member Claes Nott, who said on Tuesday that it was not certain whether the ECB would continue to raise interest rates until after its policy meeting next week.
The yield on two-year German policy-sensitive government bunds fell 0.07 percentage point to 3.1 percent on Wednesday, while the yield on 10-year bunds, a regional benchmark, fell 0.05 percentage point to 2.29 percent.
Meanwhile, contracts tracking the S&P 500 on Wall Street and those tracking the technology-focused Nasdaq 100 were flat ahead of the New York open.
Asian stocks fell, as a faltering economic recovery in China and the government’s slow implementation of stimulus measures weighed on market sentiment. The Hang Seng Index fell 1.2 percent, while the CSI 300 China Super Index fell 0.4 percent.