European shares edged lower on Friday as British bank stocks slid, while investors geared up for a slew of euro zone data and a key U.S. inflation report for cues on the potential timing of interest rate cuts on both sides of the Atlantic.
Natwest (NWG.L) dropped 4.8%, while Barclays (BARC.L) and Lloyds (LLOY.L) shed 3.5% and 3.8%, respectively, as a think tank recommended Britain's government should tax banks on the billions of pounds they receive in interest from the Bank of England on the reserves they hold at the central bank.
The banks index (.SX7P) fell 1.3%, the most among European sectors.
Earlier this week, France's opposition parties said they will bring down the minority government in the September 8 vote, which Prime Minister Francois Bayrou unexpectedly announced on Monday. The vote carries heavy risks for the economy, bringing back fears of recession, business leaders said.
France's CAC 40 (.FCHI) has shed 3.1% so far this week, lagging regional benchmark indexes.
The inflation releases from several euro area countries could point to downside potential for the underlying inflation momentum, and in turn affect December ECB rate expectations, said Christoph Rieger, head of rates & credit research at Commerzbank.
After delivering eight rate cuts since mid-2024, the European Central Bank kept its deposit rate unchanged in July and signalled a potential pause as it monitors evolving economic risks.
Meanwhile, the PCE data, the Fed's preferred inflation gauge, is expected to have remained unchanged at 0.3% in July, taking its annual rate to 2.9%. Markets broadly expect the U.S. central bank to cut rates next month, following Chair Jerome Powell's dovish remarks last week.
Shares of Remy Cointreau (RCOP.PA) pared early gains to drop 1.8%, even as the French spirits maker raised its full-year 2025/26 profit outlook.
Czech-based firearms maker Colt CZ Group SE (CZG.PR) dipped after entering a deal to buy chemicals group Synthesia Nitrocellulose in two stages in a transaction valuing the target at 22 billion crowns ($1.05 billion).
($1 = 20.9570 Czech crowns)
