Europe close: Markets turn red in late trading

(Sharecast News) - European stocks ended mostly lower on Wednesday as an early rally faded, with investors weighing a busy slate of corporate earnings and fresh UK inflation data that strengthened expectations for a Bank of England rate cut.

The pan-European Stoxx 600 slipped 0.18% to 572.29, while Germany's DAX fell 0.74% to 24,151.13 and France's CAC 40 declined 0.63% to 8,206.87.

London's FTSE 100 outperformed, rising 0.93% to 9,515.00, boosted by rate-sensitive financials and consumer stocks.

"Markets were patchy in early trading as investors spent time to digest a plethora of corporate announcements," said Russ Mould, investment director at AJ Bell.

Patrick Munnelly, market strategy partner at TickMill, added: "London's stock market saw gains on Wednesday, fuelled by growing optimism for potential interest rate cuts from the Bank of England.

"This came after surprising inflation data revealed that price growth remained steady, defying expectations."

UK inflation holds steady in September

In economic news, UK inflation held steady in September, offering some relief to policymakers and bolstering expectations of an earlier interest rate cut by the Bank of England.

Official figures from the Office for National Statistics showed the consumer prices index rose 3.8% in the 12 months to September, unchanged from August and below forecasts for a rise to 4%.

The rate remained nearly double the Bank's 2% target but signalled a further easing in underlying price pressures.

Core inflation, which excludes energy, food, alcohol and tobacco, edged down to 3.5% from 3.6%, while CPI including housing costs was unchanged at 4.1%.

Grant Fitzner, chief economist at the ONS, said: "The largest upward drivers came from petrol prices and airfares, where the fall in prices eased in comparison to last year.

"These were offset by lower prices for a range of recreational and cultural purchases, including live events. The cost of food and non-alcoholic drinks also fell."

The data marked the first monthly decline in food prices since May 2024, with the category rising 4.5% year-on-year, down from 5.1% in August.

The print boosted hopes of monetary easing, sending 10-year gilt yields to their lowest since December.

"With the monthly CPI metric coming in at 0%, the pace of inflation for the past five months is consistent with a return to 2%," said Joshua Mahony, chief market analyst at Scope Markets.

"Unsurprisingly, we have seen increased calls for easing from the BoE, with markets now shifting forward the timing of the next rate cut from February to December."

Martin Sartorius, principal economist at the Confederation of British Industry, said the softer reading "could give the broader committee greater confidence to reduce rates without risking further persistence in price pressures."

However, some analysts warned against reading too much into the data.

Hal Cook, senior investment analyst at Hargreaves Lansdown, said: "We think the market has over-reacted this morning: inflation is still nearly double the BoE target, and Andrew Bailey has been clear that future rate cuts will be made in a considered fashion."

Mould also observed that "a lower-than-expected reading of UK inflation makes a near-term cut to interest rates more likely and this boosted housebuilders.

"It also led to weakness in the pound which is typically good news for the FTSE 100 because it increases the relative value of the overseas earnings which dominate the index."

Defence stocks maintain some gains, UniCredit in the red

In equity markets, defence stocks were among the day's stronger performers after reports that a planned meeting between US president Donald Trump and Hungary's Viktor Orb�n on the Ukraine conflict had been postponed.

The development followed claims that Trump had urged Ukrainian president Volodymyr Zelenskyy to concede Russian-held territory, fuelling uncertainty over the West's future stance on the war.

Shares in Renk rose 1.38%, Dassault Aviation gained 2.7%, and Babcock International advanced 1.71%, extending recent strength across the sector.

In financials, Barclays climbed 4.78% after announcing a surprise �500m share buyback, lifting sentiment across the UK banking sector.

"If investors were looking for some reassurance after a tricky little spell for the banking sector then Barclays has provided it," said Mould.

"The scale of the share buyback announcement unveiled today does not smack of a business in panic mode, nor does an increase in the guidance for the full year.

"A decision to move to quarterly buyback announcements is an interesting one and could mean shareholders come to expect a return of capital in this way on a regular basis."

On the downside, UniCredit dropped 2.32% despite the Italian bank posting quarterly earnings ahead of forecasts, as investors took profits following recent gains.

Shares in ITV slumped 7.81% after Liberty Global, its largest shareholder, sold half of its 10% stake in the broadcaster, heightening concerns over ownership stability and future strategic direction.

"Liberty Global halving its stake in ITV is a significant development as it effectively removes a potential blocker if someone makes a takeover offer for the media group," commented Dan Coatsworth, head of markets at AJ Bell.

"Liberty Global selling down is likely to rekindle speculation over who might want to buy the business.

"Before that might happen, investors need to digest why ITV's biggest shareholder has taken its first steps down the exit path."

Reporting by Josh White for Sharecast.com.