Europe close: Stocks slip after ECB signals slightly more hawkish than expected policy tightening

European shares slumped as investors digested the European Central Bank's plans for interest rate hikes and an end to asset purchases.

The pan-European Stoxx 600 index fell 1.36% and ended the day near the lows of the session after the ECB signalled a forthcoming first rate hike in July with another, possibly of a larger size, set to follow in September.

Europe's single currency initially rose in the wake of the policy guidance which was a tad more hawkish than expected but later slipped 0.54% to 1.0658.

Although the ECB's new staff projections were for a substantial slowdown in 2023, investors appeared to be jittery regarding the possible implications of near-term inflation and possible associated policy tightening.

Dampening the mood further, Asian shares slipped overnight as new Covid restrictions were introduced in Shanghai. This in turn placed mining stocks in Europe under pressure on renewed fears of a slowdown in China.

“Oil prices are under pressure after fresh lockdown measures were imposed in Shanghai as part of Beijing’s draconian zero-tolerance approach to Covid," said Victoria Scholar, head of investment at Interactive Investor.

"Although the world’s second largest economy had been starting to ease some of its covid restrictions lately, this switch to ramping up measures once again has sparked nervousness about the potential for softer demand, pushing Chinese equities and oil prices into the red."

In equity news, British American Tobacco fell after the company warned of a hit to sales from the Ukraine war and a UK government review recommended a rise in the legal tobacco selling age from 18 by one year, every year.

Shares in food and beverage ingredients provider Tate & Lyle rose as the company reported "strong top-line growth" in the year ended 31 March, with both revenue and profits growing on an adjusted basis.