European stocks rose on Friday as investors took in the European Central Bank’s (ECB) significant rate hike decision ahead of the bloc’s important meeting regarding the energy crisis in the region.
Germany’s DAX index gained 1.4%, while France’s CAC 40 index climbed 1.6%. The UK’s FTSE 100 also surged 1.5%.
ECB Rate Hike, EU Energy Crisis
Investors are currently taking in the ECB’s unexpected move to increase interest rates by 75 basis points from 0.5% to its highest since 2011 of 1.25% on Thursday while announcing more hikes in the coming months to keep the region’s soaring inflation under control.
Data released on Friday showed that industrial output in France was down 1.6% in July, a steeper fall than the revised 1.2% decline in June.
With the Eurozone inflation at its highest in almost half a century and nearing a double-digit figure, policymakers are concerned over a potential entrenchment that could reduce household savings, preventing investment and creating a challenging wage-price spiral.
ECB President Christine Lagarde expects to increase interest rates more than twice, including the latest one, but they may not raise them five times, suggesting that rate hikes could occur until early next year.
Meanwhile, energy ministers of the European Union (EU) are due to meet later to address the bloc’s energy crisis, which may include a price reduction on Russian gas imports.
Higher gas prices are putting some European countries that primarily rely on Russia’s gas stocks at risk of rationing their supplies ahead of the winter season. Such a situation could lead industries to cease operations and the region into recession.
Newly appointed UK Prime Minister Liz Truss stated the previous day that they would cut back consumer energy bills for two years and provide support to power companies. A plan that may require the UK to spend £150 billion ($290 billion).
