Europe open: Shares slump on US debt impasse; UK inflation data

European shares opened sharply lower on Wednesday as US debt ceiling talks dragged on and UK inflation fell by less than expected, raising the prospect of yet another increase in British interest rates next month.

The pan-regional Stoxx 600 was down 1.2% in early deals with all major bourses lower.

UK consumer price inflation declined to 8.7% from 10.1% in March, versus expectations for a fall to 8.2%. It was the first time consumer price inflation came in below 10% since August last year, as energy prices eased off their highs.

However food inflation remained elevated, however, at 19.1% in April, down just a touch from 19.2% the month before.

The smaller-than-expected fall raise fears that Bank of England will have to lift rates from 4.50% to 4.75% in June.

"The headline UK inflation number may look like a massive step in the right direction in April but the reality is that there's far more to be concerned about in the report than happy," said OANDA analyst Craig Erlam.

"This is still much higher than what forecasters were predicting, a decline to 8.2%, while core inflation leaped higher unexpectedly to 6.8% from 6.2%. That's a serious setback when you consider that sticky inflation is what the BoE is fighting, not the headline number. Today's report can not be viewed as a step in the right direction, but rather a big step back."

Meanwhile the US debt ceiling saga continued to weigh on sentiment as negotiations continue without agreement.

"A wait and see mood is also set to prevail before the minutes of the Federal Open Market Committee’s May meeting are published, with investors eager to assess the latest thinking of policymakers when it comes to interest rates, and whether a pause or another hike is more likely," said Susannah Streeter at Hargreaves Lansdown.

"While the door is clearly open to a pause, it’s by no means locked in and Tuesday’s PMI showing a more buoyant private sector than forecast, is raising some concerns that another hike could be in store in the months to come."

In equity news, UK retailer Marks & Spencer surged after profits smashed expectations.

LondonMetric Property slumped on results and a plans to buy a smaller rival.

Reporting by Frank Prenesti for Sharecast.com.