ECB Hikes Interest Rates to Combat Inflation Driven by Iran War

European shares have fallen to near two-month lows on Thursday after the European Central Bank (ECB) raised interest rates by 25 basis points to 2.5% in an effort to combat inflation driven by the war on Iran.

The pan-European STOXX 600 index fell 0.5% to 637.73 points, with most major regional markets trading in the red.

ECB President Christine Lagarde warned that price pressures could remain above target for an extended period, citing risks to the inflation outlook as being to the upside.

The move was expected by traders, who have priced in a further 60 basis points of rate increases by the April 2027 meeting.