In an attempt to control inflation that is at record levels, and for the first time in a year, the eurozone interest rates have increased.
The European Central Bank (ECB) has been encouraged by the rising food and fuel costs. It put its key rate up from 4% to 4.25%.
The rate rise had been expected by European markets, though shares rose in reaction to comments by Jean-Claude Trichet, ECB president, that were interpreted as a signal that this could be a one-off rate rise rather than the first of a series.
“The monetary policy stance after today’s decision will contribute to achieving our objective of price stability”, Mr Trichet said.
“I have no bias and we are never pre-committed.”
Henk Potts, a strategist at Barclays Stockbrokers, said that the statement following the rise was “nowhere near” as hawkish as most had expected.
But some worry that higher interest rates could cause the economy to slow further.
On Thursday, figures released showed that the service sector of the eurozone economy, that extends from banks to hotels, had, for the first time since June 2003, failed to expand.
The eurozone Purchasing Managers Index fell to 49.1 in June, compared to 58.3 in the same month in 2007. A measure below 50 indicates the sector is contracting.
As the slowdown in Spain’s service sector was particularly marked, some suggested that the country was heading for a recession.
Oil prices have been expected to be pushed higher because of the rise in eurozone interest rates.
On Wednesday, Dr Chakib Khelil, president of the oil producers’ group Opec told the BBC that an interest rate rise would cause the dollar to weaken further against the euro, thus making oil a more attractive investment.
And while oil prices hit record levels with crude topping $146 a barrel for the first time, the dollar had sunk to a two-month low against the euro, though it later made ground.
In Europe, Sweden’s central bank also put its main lending rate up to 4.5% from 4.25% in a bid to combat inflation.
“Inflation has risen substantially and is at its highest level since the mid-1990s”, the Swedish Riksbank said in a statement.
And if oil and food prices continued to rise, more rate rises could be on their way.