Europe close: Stocks finish higher after ECB cuts interests rates

European stocks finished firmly higher on Thursday after the European Central Bank cut interest rates for the first time in five years, pushing the regional Stoxx 600 index to a new all-time high.

The Stoxx 600 finished 0.68% higher at 524.75, marginally ahead of the previous record close of 524.71 reached on 15 May.

As expected, the ECB cut the deposit rate by 25 basis points to 3.75%, following nine months of holding rates steady.

However, the central bank raised its outlook for inflation over the next two years and refused to give any indication about future potential cuts – something which analysts said limited gains on stock markets.

"They cut rates and simultaneously seemed to pull back on the prospect of future rate cuts. Thus, today’s cut can be considered hawkish, as the ECB has raised their inflation forecasts at the same time as saying that they remain committed to the 2% inflation target," said Kathleen Brooks, research director at XTB.

"The markets seem to be struggling with how to react to a rate cut and a hawkish message both in the same meeting."

Investors mull over data

Economic data came in thick and fast earlier on. Retail sales in the eurozone fell more than expected in April declining across all major categories, according to data released by Eurostat. The volume of retail trade in the single-currency region was down 0.5% following a downwardly revised 0.7% gain in March, and much worse than the 0.3% increase expected.

The HCOB Eurozone construction PMI total activity index for May was 42.9, up slightly on April’s 41.9. But it remained well below the neutral 50.0 level, and was one of the lowest readings of the last 11 years.

The S&P Global UK construction PMI rose to 54.7 from 53.0 in April. This was the fastest pace of growth in two years and ahead of the 52.5 expected by economists.

Meanwhile, the British Chambers of Commerce upgraded its outlook for the UK economy on Thursday, but warned long-term growth was likely to be subdued. The business group said that following a stronger start to the year, the UK economy was now on track to grow 0.8% this year and by 1% in 2025, up from previous forecasts of 0.5% and 0.7% respectively.

Market movers

Danish pharmaceuticals giant Novo Nordisk jumped to a record high amid continued demand for its blockbuster Wegovy weight loss drugs.

Shares in copper miner Antofagasta were rising after the company announced the completion of a water-supply agreement at its Centinela project in Chile.

Drinks giant Remy Cointreau was rising strongly after reporting a less-than-expected decline in profits and showing confidence in its long-term targets.