By Shivani Kumaresan and Amal S

(Reuters) – Energy and mining stocks lifted UK shares on Wednesday as data showed a better-than-expected rebound in British business activity in March, although gains were capped by concerns over the economic hit from a jump in COVID-19 cases across Europe.

The blue-chip FTSE 100 index recouped early losses to end 0.2% higher, with mining stocks including Rio Tinto, Anglo American and BHP Group gaining between 0.5% and 2.3%.

Oil heavyweights BP Plc and Royal Dutch Shell Plc gained 2.0% and 1.9%, respectively, helped by a jump in crude prices. [O/R]

“A dulling of recovery hopes as Europe tackles a third wave of coronavirus are a bit of a double-edged sword for the market as they also seem to have cooled the inflation fears that have had investors in a tizz,” said Russ Mould, director at AJ Bell investment.

The FTSE 100 has rebounded more than 36% from a coronavirus-driven crash last year, but the pace of gains has slowed recently as investors feared a vaccine-led economic recovery could lead to higher inflation.

Data on Wednesday showed British inflation unexpectedly fell in February, reflecting the biggest annual drop in clothing prices since 2009 and cheaper second-hand cars, toys and computer games, though most economists see sharper price rises ahead.

Meanwhile, data showed a rush of new orders by businesses anticipating an easing of Britain’s lockdown prompted a much stronger rebound for UK companies than expected in March. The flash IHS Markit/CIPS UK Composite Purchasing Managers’ Index (PMI) rose to a seven-month high in March.

The domestically focused mid-cap FTSE 250 index rose 0.3% helped by industrials and consumer discretionary stocks.

Holiday company TUI jumped 6.7% as it said it would shut 48 retail stores across Britain, adding to the 166 it had closed there during the COVID-19 pandemic.

(Reporting by Shivani Kumaresan and Amal S in Bengaluru; Editing by Subhranshu Sahu)