The FTSE 100 (^FTSE) and European stocks managed to bounce back after starting the week muted, as investors focus on interest rates ahead of meetings of the Federal Reserve and Bank of England this week.
Annual Inflation in the eurozone hit a fresh record high of 10.7% in October, ahead of analyst expectations of 10.3%, according to official statistics from Eurostat.
The UK's blue-chip index managed to make narrow gains supported by banking stocks.
Shares in NatWest (NWG.L), Lloyds Banking Group (LLOY.L) and Barclays (BARC.L) rose after the Sunday Times reported that a windfall tax on banks to plug a big hole in the government finances was unlikely.
NatWest, Lloyds and Barclays were among the biggest risers on the FTSE 100, up 4.6%, 2% and 1.2% respectively. Insurer Prudential (PRU.L) also rose 1.8%.
Speculation had been mounting that lenders could face a windfall levy similar to the one rolled out for energy companies after they cashed in on higher interest rates.
But talks will now focus on sticking to previous plans to raise general corporation tax, while lowering an existing 8% levy on bank profits.
“The Bank of England and US Federal Reserve have yet another thing to think about ahead of their respective interest rate decisions later this week as Russia pulls out of a Ukraine grain deal,” said AJ Bell investment director Russ Mould.
“Wheat prices are soaring off the back of the move on fears the breadbasket of Europe might be squeezed and this only adds to an existing set of inflationary pressures. Commodity prices, which had receded in relevance somewhat since the summer, are now back at the top of the agenda.
“It all adds up to an increasingly difficult tightrope for monetary policy makers on both sides of the Atlantic to walk as they look to bring inflation under control without doing too much economic damage in the process.
“Reports suggesting a windfall tax on the banking sector is unlikely helped give shares in the likes of NatWest, Lloyds and Barclays a lift on Monday.
“The current backdrop for the banks contains both the sunny rays of higher rates and the positive implications for profitability alongside some very dark storm clouds reflected in the big provisions they took to guard against a rise in bad debts in their recent results.”
Meanwhile, Brent crude (BZ=F) retreated to $95 per barrel, slipping 0.7%.
In Asia, Tokyo’s Nikkei 225 (^N225) advanced 1.7% to finish at 27,587 while the Hang Seng (^HSI) in Hong Kong slipped 0.9% to 14,723. The Shanghai Composite (000001.SS) also closed in the red, falling 0.7% to 2,893 points.