The European Central Bank has raised interest rates by 0.5 percentage points. 

The move was largely in-line with market expectations, with the 20-member monetary bloc saying it will continue to raise rates until inflation can be brought back down to the bank's 2 percent target.

"The Governing Council will stay the course in raising interest rates significantly at a steady pace and in keeping them at levels that are sufficiently restrictive to ensure a timely return of inflation to its 2 percent medium-term target," the ECB said as it announced the rate rise.

"Keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations," it added.

Inflation cooling

Headline inflation across the Eurozone has been steadily falling since it peaked at a record high of 10.6 percent in October. 

Preliminary data indicated January's rate was 8.5 percent - as a milder winter across Europe reduced energy prices.

The EBC signaled further rate rises are on the way, while also keeping the door open to shifting strategy given the uncertainty plaguing global markets.

"In view of the underlying inflation pressures, the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March and it will then evaluate the subsequent path of its monetary policy," the ECB said.

"The Governing Council's future policy rate decisions will continue to be data-dependent and follow a meeting-by-meeting approach," it added.

Uncertain outlook

Speaking at a news conference in Frankfurt, ECB President Christine Lagarde said the global economic outlook remains uncertain.

"Economic activity has slowed markedly since mid-2022 and we expect it to stay weak in the near term. 

"Subdued global activity and high geopolitical uncertainty, especially owing to Russia's unjustified war against Ukraine and its people, continue to act as headwinds to euro area growth. Together with high inflation and tighter financing conditions, these headwinds dampen spending and production, especially in the manufacturing sector." 

She added that there were green shoots of optimism, with signs that confidence is growing.

"Supply bottlenecks are gradually easing, the supply of gas has become more secure, firms are still working off large order backlogs and confidence is improving."

"Moreover, output in the services sector has been holding up, supported by continuing reopening effects and stronger demand for leisure activities. Rising wages and the recent decline in energy price inflation are also set to ease the loss of purchasing power that many people have experienced owing to high inflation," she said.

Lagarde disputed the interpretation that Thursday's to raise rates by 50 basis points meant the hiking cycle was near the end.

"We know that we have ground to cover, we know that we are not done," Lagarde said. 

She reiterated the bank's mantra was to "stay the course" in the fight to bring inflation back down to its target of around 2 percent.

Outside the bloc, the Bank of England signalled the tide was turning in the UK's battle against high inflation after it raised interest rates on Thursday for the 10th meeting in a row, prompting investors to prepare for the end of its run of higher borrowing costs.

The BoE's interest rate setters voted 7-2 to push Bank Rate to 4.0 percent - its highest since 2008 - from 3.5 percent. The move had been expected by most investors and economists polled by Reuters.