European stock markets remained broadly flat on Thursday as traders braced for the European Central Bank's (ECB) latest interest rate decision, widely expected to deliver another quarter-point hike. The Euro Stoxx 600 index was little changed in afternoon trading, while the UK's FTSE 100 slipped 0.2 per cent to 7,421 points, dragged lower by weakness in consumer discretionary and real estate stocks.
The ECB is forecast to raise its deposit rate to 4.00 per cent, the highest level since the launch of the euro, as it continues its battle against stubborn inflation in the eurozone. The decision, due at 1.15pm BST, will be followed by a press conference with President Christine Lagarde, who is expected to signal further tightening if price pressures persist. Markets are pricing in a peak rate of around 4.25 per cent by the end of the year.
In London, the FTSE 250, which is more exposed to the domestic economy, fell 0.3 per cent to 18,950 points. Sectors sensitive to higher borrowing costs, such as housebuilders and retail, were among the worst performers. Persimmon and Barratt Developments each lost more than 1 per cent, while Ocado dropped 2 per cent. Energy stocks provided some support, with BP and Shell edging higher as oil prices stabilised above $90 a barrel.
Analysts noted that the ECB's decision comes at a delicate time for UK investors, who are already grappling with the Bank of England's own tightening cycle. 'The ECB's persistence with rate hikes reinforces the global narrative that central banks are not done yet,' said a senior market strategist at a London-based brokerage. 'For UK pension funds, this means continued headwinds for growth equities and a potential drag on gilt yields as rate expectations remain elevated.'
The broader European market has struggled for direction this month, with the Stoxx 600 down about 1 per cent in September, as weak economic data from China and lingering inflation fears offset optimism about a potential end to the rate cycle. The ECB's decision will also be watched closely for any clues on how it plans to manage its balance sheet, including the pace of quantitative tightening.
Source: Market data from Refinitiv and ECB policy statements.