• The muted trade for European stocks came after gains on Wednesday on the back of strong U.S. economic data that tamed investor fears of a looming recession.
•  The Bank of England on Thursday hiked interest rates by 50 basis points, its largest single increase since 1995, as it tries to rein in runaway inflation.

LONDON — European stocks on Thursday closed slightly higher as uncertainty returned following gains in the previous session.

The pan-European Stoxx 600 provisionally closed slightly above the flatline. Travel and leisure stocks were the standout performers, gaining 1.9%, while oil and gas stocks fell 1.3%.

The relatively cautious mood for European stocks came after gains on Wednesday on the back of strong U.S. economic data that tamed investor fears of a looming recession. The ISM non-manufacturing purchasing managers index showed a surprise rebound in July also prompting U.S. stocks to climb.

The British pound came under pressure versus the dollar after the Bank of England hiked interest rates by 50 basis points, its largest single increase since 1995, as it tries to rein in runaway inflation that hit a new 40-year high of 9.4% in June. The move was largely anticipated by market participants.

The U.K.'s FTSE 100 initially traded higher but later pared gains to close mixed.

The sixth consecutive increase takes borrowing costs to 1.75% and marks the first half-point hike since the Bank was made independent from the British government in 1997.

The Bank issued a dire outlook for economic growth, suggesting that the latest gas price rise has led to another "significant deterioration" in the outlook for activity in the U.K. and the rest of Europe.

The MPC now projects that the U.K. will enter recession from the fourth quarter of 2022, and that the recession will last five quarters as real household post-tax income falls sharply in 2022 and 2023 and consumption begins to contract.

Elsewhere overnight, Asia-Pacific shares closed mostly higher on Thursday following the rally on Wall Street and as investors moved on from the tensions over U.S. House Speaker Nancy Pelosi's controversial visit to Taiwan.

Meanwhile, U.S. stocks were lower on Thursday after the major averages snapped a two-day slide in the previous regular trading session.

Earnings before the bell came from Credit Agricole, Adidas, Bayer, Lufthansa, Merck, Zalando, Rolls-Royce, Next, Glencore and Adecco Group on Thursday.

At the top of the Stoxx 600, Zalando shares jumped more than 13% after the German online retailer predicted a return to profit growth in the second half of the year, despite reporting lower earnings and sales for the second quarter.

Ubisoft shares surged 11% after Reuters reported that Chinese tech giant Tencent intends to increase its stake in the French firm. Ubisoft declined to comment when contacted by CNBC.

Lufthansa shares climbed over 6% after the German posted a smaller-than-expected quarterly loss.

At the bottom of the European blue chip index, British airplane engine manufacturer Rolls-Royce fell almost 9% after reporting a larger-than-expected slide in first-half profit.

— CNBC's Ryan Browne contributed to this report.