Europe midday: Gains pared but UK CPI fall still driving rally

European shares eased off morning highs on Wednesday, but were still higher as UK inflation fell further than expected, sending property and housebuilding stocks higher on hopes of a halt to interest rate rises.

The pan-regional Stoxx 600 was up 0.30% with all major bourses in the green. Britain’s FTSE 100 was up 1.6% as the British pound fell against the US dollar and the euro, while government bond yields fell sharply.

UK consumer price inflation fell more than expected in June, according to official figures, easing pressure on the Bank of England to keep hiking rates.

CPI fell to 7.9% in the year to June from 8.7% in May. This was the lowest reading since March 2022 and below analysts’ expectations of 8.2%, but remains well above the Bank's 2% target.

The ONS said that falling fuel prices were the biggest contributors to the decline in CPI.

Meanwhile, core inflation - which excludes energy, food, alcohol and tobacco - fell to 6.9% from 7.1%, versus expectations for it to remain unchanged.

“June’s data was the first time in five months that inflation did not come in hotter-than-expected. The pound is snapping its recent winning streak, heading for its biggest one-day drop this month, depreciating by over half a percent against the US dollar and touching its lowest level against the euro since May,” said Interactive Investor analyst Victoria Scholar.

UK housebuilders and property-related stocks dominated the leaders board on hopes of lower borrowing costs for consumers seeking mortgages.

Persimmon, Barratt Developments, British Land, Bellway, Derwent London and Vistry Group were all among the gainers.

Shares in Aston Martin were also trading sharply higher after Goldman Sachs upgraded the luxury car maker stock to ‘buy’ from ‘neutral’ and almost doubled its price target to 413p from 212p.

Reporting by Frank Prenesti for Sharecast.com