(Bloomberg) -- European stocks dropped on Thursday as hawkish signals from the Federal Reserve overshadowed a pause in rate hikes from the Bank of England.

The Stoxx 600 fell 1.3% by the close in its biggest one-day drop in seven weeks. UK stocks also closed lower, erasing small gains that were driven by the Bank of England keeping rates unchanged. Ocado Group Plc plunged the most in 11 years after a top-ranked analyst and former long-term bear resumed his negative view, just three months after upgrading the UK online grocer.

European travel and leisure shares sank the most, while retail outperformed. 

Marija Veitmane, senior multi-asset strategist for State Street Global Markets, said the BOE’s move could mark an inflection point for UK stocks, which have been laggards in 2023. “We have UK stocks on our overweight list as we like them for their energy and defensive exposure. A weaker sterling would be the cherry on the cake,” she said.

UK stocks had surged on Wednesday, when data showed Britain’s inflation rate fell unexpectedly, easing pressure on the BoE. Investors had fully priced in one more quarter-point increase this year in the 5.25% base rate. 

Read more: Could This Be the Inflection Point for UK Shares?: Taking Stock

The Swiss Market Index dropped 0.6% after the Swiss National Bank paused, defying expectations of another rate hike, to avoid further constricting a stalling economy. 

“In Europe, it’s clearly the Fed’s higher-for-longer message which is percolating through fixed income yields and having an impact”, said Gilles Guibout, a portfolio manager at Axa Investment Managers in Paris.

Among individual movers, JD Sports Fashion Plc jumped after reporting first-half revenue at its key unit grew by 27% in Europe and 15% in North America, defying wider pessimism on the sector. Clothing retailer Next Plc gained after raising its forecast for the third time in recent months.

Read more: Fed Signals Higher-for-Longer Rates With Hikes Almost Finished

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