Europe midday: Stocks down as inflation fears dim early rate cut hopes

European shares were lower at midday on Friday as worries that persistent inflation could see a delay in planned interest rate cuts this year weighed on sentiment.

The pan-European Stoxx 600 index was down 0.45% to 519.19, with all major regional bourses following suit after large falls on Wall Street and in Asia.

In the US, Federal Reserve policymakers have this week expressed greater worries about inflation, with price rises stubbornly refusing to come down to the central bank's target of 2%, while hot PMI survey data also suggested wage growth and prices may have some way to fall.

"With earnings season largely behind us, we will now see markets following the economic data more closely, and unfortunately, we look set for a protracted period of high rates if recent inflation data is anything to go by," said Scope Markets analyst Joshua Mahony.

"Yesterday’s US PMI survey saw a sharp rise across both manufacturing and services, highlighting continued strength that pours cold water on disinflationary hopes with a sharp surge in services sector activity pushing overall business activity to a two-year high."

"Unfortunately, the underlying price pressures seen within both manufacturing and services sector activity pushed higher yet, highlighting the fact that the final push back down to the Fed’s 2% will likely remain elusive for some time yet."

Similar problems emerged in the UK this week where inflation fell less than expected, posing a major headache for embattled Prime Minister Rishi Sunak, who has called a General Election for July 4 with his part 21 points behind in the polls.

Further misery came on Friday in the form of UK retail sales, which fell a more-than-expected 2.3% last month against a consensus estimate of -0.4% due to an extremely wet spring. March’s figure was also revised to a 0.2% decline from flat.

“Sales volumes fell across most sectors, with clothing retailers, sports equipment, games and toys stores, and furniture stores doing badly as poor weather reduced footfall,” the Office for National Statistics said.

In equity news, Intertek gained as the company backed its full-year expectations and hailed a strong start to the year, with 7% growth in like-for-like revenue, driven by a recovery in the consumer products segment.

Acciona fell almost 6% after the Spanish construction and energy conglomerate on Thursday said its core earnings would grow less than previously expected this year based on current forecast energy prices.

Reporting by Frank Prenesti for Sharecast.com