European stocks fall as inflation fears return; Starmer faces leadership challenge

European stocks fell on Friday as inflation returns to investors' minds following a week of hotter-than-expected U.S. price data, while U.K. Prime Minister Keir Starmer faces a potential leadership challenge.

Shortly after the opening bell, the pan-European Stoxx 600 index was seen trading down 0.7%. London's FTSE 100 opened 0.7% lower, while Germany's Dax fell 0.9% and France's Cac 40 fell 0.8%.

Shares in Europe are tracking Asian markets' overnight declines after South Korea's benchmark Kospi index fell more than 3% on Friday, retreating from a fresh record high above 8,000, as broader Asia-Pacific markets fell.

The small-cap Kosdaq was down 2.61%. Japan's Nikkei 225 declined 1.1% and the Topix lost 0.13%. 

Hong Kong's Hang Seng index slid 0.89% while the CSI 300 remained flat. India's Nifty 50 was up 0.2%.

Starmer faces a fresh battle for his premiership as his Labour Party rival Andy Burnham was offered a route to parliament on Thursday, paving the way for a leadership challenge.

Burnham, the current Manchester mayor and the more left-leaning candidate, is not an MP but Labour MP for Makerfield Josh Simons announced he was resigning, paving the way for Burnham to run for the seat in a special election. Victory is by no means guaranteed, however, as Burnham will come up against a resurgent right-wing party Reform UK.

Burnham is seen by the bond market as leaning more to the left — a factor that has sent borrowing costs higher, with investors fearing a less conservative prime minister could herald more borrowing and public spending, and higher debt.

The pound clocked its fifth consecutive daily decline after a week of political tumult, down 0.46% to $1.3342.

Meanwhile, investors will continue to watch developments from the U.S.-China summit, which concludes Friday after the two countries discuss their policies on trade, tariffs and Iran, as well as Taiwan. On Thursday, both the U.S. and China agreed that the Strait of Hormuz must be open, according to a U.S. readout that was shared by a White House official.

A potential resurgence in U.S. inflation would also impact markets in Europe. 

On Wednesday, April's U.S. producer price index rose 1.4%, the biggest monthly increase since March 2022 and also exceeding economists' 0.5% consensus estimate and the upwardly revised 0.7% March increase. On an annual basis, the index was up 6% — the biggest increase since December 2022.

The report arrived a day after the Bureau of Labor Statistics reported that the consumer price index rose 3.8% from a year ago for the month, as surging energy prices compounded inflation by a surprise jump in shelter costs.

Core inflation was more subdued at 2.8% but still well above the Federal Reserve's 2% goal, likely keeping central bankers on hold as the impacts from the Iran war and President Donald Trump's tariffs play out.

— CNBC's Sean Conlon also contributed to this report.