Europe close: Shares close lower on China worries; Eyes on UK CPI

European shares closed lower on Tuesday as a raft of Chinese date fuelled investor concerns about the faltering state of the world second-largest economy.

The pan-European Stoxx 600 index finished 0.95% lower at 455.48, while Britain's FTSE fell 1.63% after wages growth hit its highest rate since records began in 2001, sparking fears that the Bank of England's relentless run of interest rate rises would continue.

Eyes will now turn to UK inflation data which, to be published Wednesday morning. Economists widely predict that consumer prices will have fallen 0.5% in July after a 0.1% gain in June. The annual rate of inflation is estimated to have dropped to 6.9% from 7.9%. On a core basis, which strips out more volatile food and energy prices, inflation is expected to have slowed from 6.9% to 6.8%.

Average weekly earnings excluding bonuses rose 7.8% in the quarter, the Office for National Statistics said. Total earnings rose 8.2%, higher than forecasts of 7.3%, boosted by one-off bonus payments made to National Health Service staff in June.

"Inevitably this will increase the pressure on the Bank of England to raise rates again at its September meeting by another 25bps, even as headline CPI for July is expected to slow sharply below 7% in numbers released tomorrow," said CMC Markets analyst Michael Hewson.

Meanwhile, the unemployment rate increased to 4.2% from 4%, its highest since October 2021.

The pound rose by 0.28% immediately after the jobs data was released, rising to $1.272 and also strengthening against the euro, before losing some ground.

‘’The blast of cold air from higher interest rates is being felt in the labour market, with unemployment ticking up but the risk is that the growth in wages will continue to fan the fires of inflation. With the highest annual wage growth recorded in June since records began in 2001, another rate hike from the Bank of England looks bolted on in September," said Hargreaves Lansdown analyst Susannah Streeter.

In China, the country's central bank made a surprise cut to interest rates on Tuesday as it looked to stimulate economic demand amid a sputtering recovery.

Defying expectations, the People's Bank of China cut the rate on 401 billion yuan ($55.25bn) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 15 basis points to 2.50% from 2.65% previously.

Data released on Tuesday also showed China's July retail sales rose 2.5% on an annualised basis, well below expectations of a 4.5% increase. Meanwhile, industrial production increased 3.7% year on year. missing the 4.4% increased by analysts.

The National Bureau of Statistics also said it was suspending publication of youth unemployment data indefinitely.

In equity news, shares in Marks & Spencer surged as the UK food, clothes and homewares retailer lifted guidance for half-year profits after strong sales growth in the first 19 weeks of its financial year.

Swiss lab instruments maker Tecan also soared after reporting upbeat half-year numbers.

Reporting by Frank Prenesti for Sharecast.com