Europe close: Stocks slip as US-Iran talks called off

19th Jun 2026 15:58

(Sharecast News) - European shares slipped into the red on Friday as Iran-US peace talks were cancelled after further exchanges of fire between Israel and the Iran-backed Hezbollah militia, while UK political uncertainty also weighed on sentiment.

The pan-European Stoxx 600 fell 0.22% to 635.75.

Germany's DAX was broadly flat, down 0.005% at 25,025.61, while France's CAC 40 slipped 0.55% to 8,421.14 and London's FTSE 100 dropped 0.35% to 10,363.27.

In commodities, Brent crude futures were last up 0.89% on ICE at $80.56 per barrel, while the NYMEX quote for West Texas Intermediate rose 1.14% to $77.47.

Dan Coatsworth, head of markets at AJ Bell, said: "The FTSE 100 was steady on Friday after gains on Wall Street yesterday, as investors largely shrugged off the latest political news in the UK."

London's market was pressured by renewed political uncertainty after Greater Manchester mayor Andy Burnham won a by-election against challengers from two far-right parties, clearing a path for him to launch a leadership bid against prime minister Keir Starmer.

Kathleen Brooks, research director at XTB, said the "winds of political change" appeared to be blowing in Westminster after Burnham's "resounding win" in the Makerfield by-election.

"Although he has not formally announced that he will stand in a leadership contest, Burnham is already giving victory speeches and laying out his vision to get the UK economy moving again," she said.

Brooks said Burnham's early pledges included reindustrialising the north of England, using public procurement to buy British-made products, guaranteeing work placements for 16 to 18-year-olds and promising to bring down water bills, energy bills and rail fares.

However, she said there was little detail on how those plans would be delivered, while markets were still waiting to see whether he would formally run and who he would choose as chancellor.

Investors were also watching developments in the Middle East after talks scheduled for Friday between the US and Iran in Switzerland were cancelled.

The move followed the killing of four Israeli soldiers by Hezbollah and Israeli retaliatory airstrikes in southern Lebanon that killed at least 18 people.

The negotiations had been due to begin after Washington and Tehran signed a memorandum of understanding opening a 60-day window to agree a permanent arrangement on Iran's nuclear programme and the reopening of the Strait of Hormuz.

"Oil prices ticked higher and Asian stocks dipped as negotiations between Washington and Tehran were apparently put on hold while Israel continued to pursue strikes against Lebanon," Coatsworth said.

"These developments are a reminder that for all the relief around a deal being agreed in the Middle East, there remain material obstacles to returning to a pre-war situation.

"BP and Shell clawed back some of the ground they lost this week, while more defensive names found a bit of favour in London too," he added.

"Banks were on the back foot along with retailers."

UK government borrowing shoots past forecasts

On the economic front, UK government borrowing rose more than expected in May.

The Office for National Statistics said borrowing came in at £23.3bn, up £5.4bn from May 2025 and £5.6bn above the £17.7bn forecast by the Office for Budget Responsibility.

Borrowing in the financial year to May stood at £46.3bn, £8.9bn higher than in the same period a year earlier and £7.7bn above the OBR's forecast.

Central government debt interest payable rose by £4.1bn year-on-year to £11.7bn, the highest May figure on record.

Tom Davies, senior statistician at the ONS, said borrowing in the first two months of the financial year was nearly £9bn higher than in the same period of 2025.

He said spending on debt interest, public services, investment and benefits all rose in May, more than offsetting higher tax receipts.

Nabil Taleb, economist at PwC UK, said the figures offered "little reassurance", with public finances unlikely to feel much relief while inflation risks remain.

He said elevated interest rates were feeding into debt-servicing pressures and limiting the Chancellor's room for manoeuvre.

Brooks said the public finance data had added to pressure on UK gilts, with 10-year and 2-year yields both nearly 8 basis points higher on Friday.

"The prospect of more political chaos comes after UK public finance data showed another surge in borrowing last month," she said.

"It was a whopping £23.3bn in May and borrowing in the first two months of the new fiscal year is already £9bn higher than a year ago.

"Spending on debt interest payments and benefits all increased this May vs. May 2025, which more than outweighed higher tax receipts."

Brooks said the gilt market reaction suggested investors were concerned not only by Burnham's potential challenge, but also by the wider fiscal backdrop.

"This is unsustainable, and the rise in UK Gilt yields today tells us three things - one, it is not all because of Andy Burnham; two, you cannot borrow excessive amounts of money when growth is flat lining; and three, Burnham faces extremely constrained circumstances if he does topple Starmer," she said.

Defence plays rise on latest hostilities

In equity markets, defence stocks gained after the latest Israel-Hezbollah hostilities.

Kongsberg Gruppen rose 4.12%, Leonardo gained 1.66% and Hensoldt advanced 1.23%.

Entain was also in focus, falling 1.23% following reports that the Ladbrokes owner was preparing to sell its stake in its Central and Eastern Europe venture to raise cash and reduce debt.

"Entain is under significant pressure to do something about the extra costs triggered by hikes to online gambling taxes in the UK - something that has also depressed its share price," Coatsworth said.

PPHE Hotel was also watched, closing down 15.8% after its proposed deal with Fattal Hotel collapsed following opposition from major shareholder Euro Plaza.

"Having seen the PPHE Hotel board flag an offer from Fattal Hotel as fair value last month, there is likely to be frustration that the deal has collapsed thanks to the opposition of major shareholder Euro Plaza," Coatsworth said.

Reporting by Josh White for Sharecast.com.