European stocks declined for the first time in three days as investors weighed the possibility of hawkish-for-longer central banks against optimism around cooling inflation.

The Stoxx 600 Index was down 0.8% at 12:39 p.m. in London, following subdued trading in US stocks overnight after hawkish comments from Federal Reserve Bank of San Francisco President Mary Daly. While data on Thursday showed core inflation rose only modestly, Daly said in an interview on Yahoo! Finance that the central bank had more work to do to tame price pressures.

Miners and real estate sectors were among the biggest decliners, while telecoms outperformed. Telecom Italia SpA edged higher after KKR & Co. signed a memorandum of understanding with Italy to include the government in its €23 billion ($25.3 billion) bid for the company. Bechtle AG jumped as it reported better-than-expected pretax profit for the second quarter.

UBS Group AG gained as it decided to end an agreement with the Swiss government to cover losses it could incur from the rescue of Credit Suisse, in a sign that the stricken lender’s assets might be less troublesome than initially feared.

After rising for two straight months, the European stocks benchmark has pulled back in August as investors worry about higher interest rates and a lackluster corporate earnings season. Outflows from regional stock funds extended for a 22nd straight week, according to a Bank of America Corp. note citing EPFR Global.

Still, Sanford C. Bernstein strategist Sarah McCarthy said the valuation gap with US equities “is now more extreme than ever,” keeping European stocks more attractive. In a note on Friday, she reiterated an overweight recommendation in Europe versus the US.

Meanwhile, data in the UK showed the economy grew more strongly than expected in the second quarter after activity roared back in June following an extra bank holiday for King Charles III’s coronation. Neil Birrell, chief investment officer at Premier Miton Investors, said the figures would keep the Bank of England walking “a tightrope” in the next few months.

“They may well have been thinking about pausing interest rate increases soon, but this data will make that more difficult and, at the same time, increases the risk of rates staying too high for too long and causing a worse recession,” Birrell said.

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