Europe open: Central banker inflation warnings hit shares

European shares slumped at the open on Thursday after warnings from central bankers that inflation would be more persistent than originally thought, sparking fears of a recession.

The pan-European Stoxx 600 index was down 1.5% in early deals with all major bourses lower. France's CAC 40 plunged 2.0% as preliminary official figures showed inflation climbed further from the previous month to a record 6.5%.

Federal Reserve Chair Jerome Powell and his counterparts in Europe and the UK warned inflation would persist for longer than initially thought as they gathered at the European Central Bank’s annual forum in Portugal.

Powell on Wednesday said there was “no guarantee” inflation could be tamed without hurting the job market. He added that Russia’s invasion of Ukraine had made it “significantly more challenging” to address high prices.

Bank of England Governor Andrew Bailey and European Central Bank president Christine Lagarde also suggested more aggressive interest rate rises may be needed even as the global economy slows.

Bailey, who has been accused of being too cautious in his approach to rate hikes with inflation in the UK heading towards 11%, said the BoE had ‘the option’ of acting more forcefully.

Hargreaves Lansdown analyst Susannah Streeter said "a sense of foreboding" was gripping financial markets.

"Following fresh falls on Wall Street, Asian markets retreated and European indices also opened lower. The FTSE 100 slid 1.8% with risers very few and far between. As worries about a global downturn have increased, oil has dipped amid expectations of lower demand, with Brent Crude falling slightly to below $116 a barrel."

"But it’s still at an eye-watering level, up 51% since the start of the year due to intense supply pressures. OPEC countries are currently meeting to decide the way forward for production targets, but early indications are that the prospects that they’ll pump significantly more oil going forward are low."

In equity news, shares in German utility Uniper fell 18% after the company withdrew its outlook for the 2022 financial year due to gas supply restrictions from Gazprom.

Virgin Money shares rose as the bank started a £75m share buyback.