European shares set for weekly drop as higher-for-longer rates loom

European shares slipped on Friday and were on track to close a week, packed with central banks’ decisions, sharply lower as investors assessed the prospects that borrowing costs will remain high for some time.

The pan-European STOXX 600 index inched 0.3% down by 0745 GMT, after ending the previous session more than 1% lower as the Bank of England (BOE) followed the U.S. Federal Reserve in keeping rates steady, but flagged that the central bank did not think its job was done.

The STOXX 600 fell as much as 0.7% before cutting losses after preliminary data showing a contraction in economic activity in France and Germany raised hopes that the European Central Bank (ECB) would soften its policy stance.

“The BoE warned it expects rates to stay high for an extended period, and it is not alone in this regard,” said Dean Turner, chief euro zone and UK Economist, and Matteo Ramenghi, chief investment officer Italy at UBS Global Wealth Management, in a note.

“The ‘will they, won’t they hike’ debate is likely to be with us at least until the end of the year, but on the back of further evidence that inflation pressures are easing, the focus will soon turn to the timing of interest rate cuts.”

AstraZeneca (NASDAQ:AZN) gained 2% after the London-listed drugmaker said its experimental precision drug had slowed the progression of breast cancer in a late-stage trial.

Oil and gas group Vaar Energi fell 7.3% after Norway’s HitecVision said it had sold a 6.3% stake in the company for 4.56 billion Norwegian crowns ($423 million).

Shares of eBay-backed online classifieds group Adevinta jumped 18.4% after the Norwegian company said it had received a takeover proposal from a consortium led by Permira and Blackstone (NYSE:BX).

Shares of Chrysler parent Stellantis slipped as the Detroit Three automakers and the union representing the companies’ U.S. hourly workers entered the final hours to reach new labour agreements before the current coordinated strike expands to include more plants.

Spain’s gross domestic product grew 0.5% in the second quarter, National Statistics Institute said, as it revised its July estimate up from a 0.4% growth.

British retail sales partially recovered in August after a rainy July washout, official figures showed, adding to signs that the country’s consumers were mostly coping with the cost-of-living squeeze.

Investors awaited PMI data from the UK due later in the day.