The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 15, 2022.
The German share price index DAX graph is pictured at the stock exchange in Frankfurt, Germany, February 15, 2022. Reuters / STAFF

European stocks tumbled to their lowest levels in 16 months on Thursday after policy tightening in Britain and Switzerland fuelled fresh worries about the impact of inflation on the global economy.

Already under pressure at the open after the U.S. Federal Reserve's big interest rate hike on Wednesday, the benchmark STOXX 600 fell further after the SNB's unexpected rate hike.

The index declined 2.5%, hitting its lowest level since February 2021.

"There is very little to be cheerful about," said Giuseppe Sersale, strategist at Anthilia in Milan, adding that with the Swiss central bank's surprise rate hike, investors are clearly worried about more tightening elsewhere.

Yields also rose as money markets ramped up bets on European Central Bank rate hikes to price in around 190 bps of rises by December, compared to 140 bps a day earlier.

The Swiss equities index dropped 2.9%, lagging major regional European markets, with banking heavyweights such as UBS and Credit Suisse down 4.9% and 6%, respectively.

The UK's blue-chip FTSE 100 fell 3.1% after the Bank of England raised interest rates by an expected quarter percentage-point but said it was ready to act "forcefully" to stamp out dangers posed by an inflation rate heading above 11%. [.L]

"The initial reaction was dovish. But, having sort of digested the news it seems that the takeaway is that they may have hiked by 25 this time but the policy statement really indicates that they may be considering more aggressive hikes further on," said Jonas Goltermann, senior economist at Capital Economics.

The retail sector dropped 3.8% after British online fashion retailer ASOS slumped 32.5% and warned inflationary pressures were affecting shopping behaviour.

Smaller rival Boohoo shed 11.3% after reporting an expected fall in revenue in its latest quarter.

The STOXX 600 snapped a six-day losing streak on Wednesday after the European Central Bank (ECB) unveiled measures to temper a bond market rout.

Still, worries about the darkening economic outlook and hit to corporate earnings have left the index with year-to-date losses of 17.3%.

France's benchmark CAC 40 fell more than 20% from its most recent record closing high to confirm a bear market began on Jan. 5, according to a commonly used definition.

Prosus NV, the Dutch-based technology investor, slipped 5.6% after it said underlying earnings will fall in 2022 due to lower dividends from companies it invests in, and higher investment costs in e-commerce companies it operates.