The pan-European STOXX 600 closed down 0.2% at 645.94 points, after hitting one-month lows earlier in the session

European shares edged lower on Wednesday, pressured by higher bond yields as escalating tensions in the ‌Middle East stoked worries about energy-induced inflation.

The pan-European STOXX 600 closed down 0.2% at 645.94 points, after hitting one-month lows earlier in the session. Retailers led a majority of sectors lower with a 2.3% drop.

Germany DAX slipped 0.5%, while France’s CAC 40 declined 0.3% after hitting a near two-month low earlier in the session. French stocks took a beating last week on fiscal concerns ahead ​of next year’s election.

Brent crude prices traded above $95 a barrel, adding to inflation ​worries as Iran and U.S. traded more strikes overnight in the most serious escalation of the war ​between the two countries in weeks.

Europe is seen as especially vulnerable to the months-long ⁠war given its reliance on energy imports, but strong earnings during the latest reporting season were a relief ​to investors and cushioned some of the STOXX’s losses on signs that companies were coping better than expected.

The backdrop ​is still relatively positive and that growth has been surprising to the upside, at least from a European perspective. So that gives us some support, said Gordon Kerr, European macro strategist at KBRA.

But concern about elevated prices is what’s driving uncertainty in ​the short term, he said.

Higher government debt in regional economies, such as France, Italy and Britain, has been in focus ​as higher interest rates could add to fiscal burdens.

The yield on German 10-year bonds hit its highest level since April 2011. ‌Investors see ⁠a nearly 100% chance the European Central Bank will increase interest rates by 25 basis points next week, while nearly a half-percentage-point rate hike is expected by the year-end, LSEG-compiled data showed.

Higher rates ​are seen as broadly ⁠positive for lenders and, on Wednesday, banking stocks helped limit losses on the STOXX index, jumping 0.6%.