European shares close higher on US-Iran talks; UK's Starmer resigns

European shares edged higher on Monday as investors weighed the latest round of U.S.-Iran negotiations and political developments in the United Kingdom, while markets also reacted to easing energy prices.

The pan-European STOXX 600 index (.STOXX) closed up 0.6%, recovering from two consecutive sessions of declines.

British banking stocks led gains, with Barclays (BARC.L), NatWest (NWG.L), and Standard Chartered (STAN.L) rising 3.9%, 4.0%, and 1.3%, respectively. The broader European banking index (.SX7P) advanced 1.4%.

The move came as British Prime Minister Keir Starmer announced his resignation, setting the stage for an expected leadership transition within the Labour Party. Andy Burnham, currently seen as a frontrunner, could become the United Kingdom’s seventh prime minister in just over a decade as early as next month.

“Recent weakening of Labour’s hold over the electorate has negatively affected the perception of the U.K. as a place to invest,” said Morningstar equities strategist Michael Field. “The potential election of a popular candidate like Andy Burnham would likely improve market perception.”

In geopolitical developments, Washington and Tehran reportedly agreed on a roadmap toward a final peace deal, including measures to safeguard shipping through the Strait of Hormuz. The announcement, mediated by Qatar and Pakistan, helped ease market concerns and pushed Brent crude oil down 2%, to below $80 per barrel.

However, uncertainty persisted after Tehran declared the waterway closed on Sunday, citing ongoing conflict between Israel and Lebanon.

“There is still a little bit of uncertainty with regard to what the picture is with the Strait of Hormuz. There do appear to be some vessels passing through, which is keeping equities supported,” said Fiona Cincotta of City Index.

The STOXX benchmark reached a record high last week on optimism surrounding Middle East peace negotiations. Still, recent hawkish signals from the U.S. Federal Reserve have reminded investors that inflation risks and elevated energy costs remain in focus.

European Central Bank President Christine Lagarde said the recent inflation shock in Europe was not large enough to significantly alter longer-term price expectations, even as market data from LSEG showed investors continue to price in another quarter-point interest rate increase this year.

In sector moves, technology stocks (.SX8P) rose 0.5%, supported by a 4.8% gain in chipmaker Infineon (IFXGn.DE), which tracked stronger Asian equities.

Budget airline easyJet (EZJ.L) climbed 2.8% after U.S. investment firm Castlelake made a £4.74 billion ($6.26 billion) offer.

Meanwhile, British defense and engineering group Babcock (BAB.L) fell 5.9% after reporting a sharp decline in annual profit, weighed down by a £140 million charge tied to its Royal Navy Type 31 frigate program due to higher-than-expected rework costs. -Reporting by Utkarsh Hathi, Johann M Cherian and Purvi Agarwal in BengaluruEditing by Rashmi Aich, Sonia Cheema and David Goodman/Reuters