European stock markets declined on Thursday as the European Central Bank kept interest rates unchanged, pausing after a June hike that brought the deposit rate to 2.5%. The STOXX 600 closed down 1.05%, with major bourses from Frankfurt to Madrid posting losses.
Markets opened weak ahead of the ECB decision, weighed down by Middle East tensions including the US-Iran conflict and the blockade of the Strait of Hormuz, which has pushed oil prices back above $90 a barrel. ECB President Christine Lagarde said inflation is at a good level, with core inflation in the European Union slowing faster than expected.
Financial markets anticipate between two and three more rate hikes despite the pause. Scorching summer weather across Europe may damage crops and push up food prices, while services inflation slowed last month. In corporate news, BNP Paribas rose 1.2% after reporting better-than-expected quarterly profit, while Shell fell 3.4% after missing earnings expectations.