Europe close: Stocks slump as Federal Reserve disappoints

The benchmark Stoxx Europe 600 ended down 1.5% at 336.58, while Germany’s DAX fell 1.4% to 10,611.10 and France’s CAC 40 declined 1.8% to 4,692.46.

In London, equity markets fared a little better but still ended down, with the FTSE 100 off 0.8% at 6,711.93 after the BoE left interest rates unchanged at 0.75%, as expected, amid growing Brexit uncertainty.

The BoE also trimmed its forecast for British quarterly economic growth in the last three months of 2018 to 0.2% from 0.3%.

"The broader economic outlook will continue to depend significantly on the nature of EU withdrawal," the meeting minutes said. "The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction."

The downbeat tone in Europe followed on from heavy losses on Wall Street overnight, as the Fed defied President Donald Trump and raised key lending rates by 25 basis points.

It said "some further" rate hikes would be necessary in the year ahead and expected two rises in 2019 instead of three forecast in September. The Fed also cut its GDP growth estimate for this year by 0.1 percentage points to 3%, while the 2019 growth outlook was reduced by 0.2 percentage points to 2.3%.

But the announcement was not as dovish as had been expecting, sending US stocks to their lowest level in 15 months.

CMC Markets analyst Michael Hewson said: "The decision to raise rates was not a surprise, however the guidance was, in that it wasn’t dovish enough. Fed chairman Jay Powell did recognise some of these concerns by saying that growth and inflation were likely to be weaker, yet his overall tone came across as steady as she goes, as the US central bank continued to act as if the sun was shining, slapping on the sun screen, instead of investing in some form of storm insurance, as dark rain clouds start to loom larger.

"The Fed showed no indication that they were prepared to rein back the pace of balance sheet reduction, and while they lowered their estimates for rate rises next year to two from three, it was almost as if they were offering a tin ear to market concerns."

In corporate news, Airbus shares fell sharply following a report that the US has launched an investigation into allegations of corruption. According to French newspaper Le Monde, the aircraft manufacturer is facing an investigation into suspicious practices that includes alleged corruption in commercial contracts between France and Kazakhstan.

Danish consumer electronics company Bang & Olufsen tumbled after cutting its sales outlook for the year.

AstraZeneca was in the red even as the pharmaceuticals giant said two clinical trials of its Roxadustat drug showed positive results for the treatment of patients with anaemia in chronic kidney disease. The company also said on Thursday that it had received EU approval for its Bevespi Aerosphere inhaler to be used in the treatment for symptoms of chronic obstructive pulmonary disease.

Aluminium company Norsk Hydro was among the fallers after the US said it would lift sanctions against its competitor Rusal.

The Stoxx 600 oil and gas index closed down 2% at 299.11 as oil prices resumed their slide amid worries about oversupply.