Europe open: Shares up on softer UK CPI, German data

(Sharecast News) - European shares made a strong start on Wednesday after UK inflation posted a bigger-than-expected fall in November, fuelling hopes of a rate cut by the Bank of England next year, while German producer prices also declined faster than forecast.

The pan-European Stoxx 600 opened up 0.38% at 478.86, with all major bourses higher.

UK inflation slowed more sharply than expected in November to 3.9%, down from 4.6% in October, official data showed Wednesday, adding pressure on the BoE for a cut in rates next year.

Policymakers held the benchmark base rate at 5.25% last week and then set about dampening expectations of any easing, saying monetary policy was likely to tight for an extended period of time.

"Inevitably, speculation that the Bank of England will begin to lower interest rates in the first half of next year is rising. Sterling is falling this morning as its future support looks to be weakening if UK rates are going to be coming down. Gilts are expected to be well bid this morning as the market prices in a more benign inflationary outlook," said Steve Clayton, head of equity funds at Hargreaves Lansdown.

Meanwhile, German producer prices fell more than expected in November, down 7.9% year on year, according to the federal statistics office. Analysts had been looking for a 7.5% decline.

In other economic news, China kept lending rates unchanged as expected, while in Germany a survey showed consumer sentiment should improve in the new year, although concerns about the impact of geopolitical crises and food inflation continue to cause uncertainty.

The GfK/NIM consumer sentiment index rose to -25.1 points heading into January from a revised -27.6 the month before and above expectations of a -27.0 reading.

Income expectations jumped by 9.8 points to -6.9, the highest reading since July . A further study by NIM showed that a third of respondents thought their financial situation would improve because of changes to pensions and because of "previous or future wage/salary increases".

In equity news, shares in Raiffeisen Bank surged after a deal to buy a 28% stake in Austria's Strabag, one of the largest construction companies in Europe, from Russian oligarch Oleg Deripaska in a deal that would work around EU sanctions.

Reporting by Frank Prenesti for Sharecast.com