Europe midday: Shares rally despite rise in UK inflation

European shares rallied on Wednesday, pushing into the green despite a surprise rise in inflation, increasing the prospect of a rate increase from the Bank of England tomorrow.

The pan-regional Stoxx 600 index was up 0.38% at midday with Britain’s FTSE 100 up 0.4% and all other major bourses higher. Policy makers at the Bank of England will meet Thursday to decide the future path of interest rates, with forecasters expecting a quarter-point rise.

Inflation rose to 10.4% from 10.1% in January, coming in above expectations of 9.9%. On a monthly basis, CPI rose to 1.1% compared to 0.8% in February 2022.

The largest upward contributions came from restaurants and cafes, which the ONS said was driven by increases in the cost of alcohol, as well as food, and clothing. Food prices soared by 18.2% over the year.

Core inflation, which strips out the more volatile elements of food, energy, alcohol and tobacco, also rose sharply, to 6.2% from 5.8% in January.

"Today’s data seals the deal on a 25bps rate rise tomorrow but also increases the pressure for the central bank to go further and consider a 50bps move," said, CMC Markets analyst Michael Hewson.

Investors are now awaiting an announcement from the US Federal Reserve later in the day amid turmoil in the banking sector after the collapse of Silicon Valley Bank and the rescue of First Republic.

In equity news, shares in UK house builder Vistry rose after a rise in results and brighter outlook.

Property stocks were out of favour on the prospect of higher borrowing costs, with British Land, Grand City Properties and Vonovia all lower. British Land was also hit by a downgrade to ‘sell’ at Goldman Sachs.

Marks & Spencer was boosted by rating upgrades at Exane, Goldman and Citi.

Reporting by Frank Prenesti for Sharecast.com