17 October 2024
If you are covering the latest ECB interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter Investors:
“The European Central Bank has announced its first back-to-back interest rate cut in 13 years with another 0.25% reduction – the third so far this year. With inflation now sitting well below the ECB’s target and economic growth still sluggish, markets had been expecting the Bank would continue on its path of rate cuts.
“Eurozone harmonised inflation fell to 1.7% in September, revised down from the initial estimate of 1.8%, marking the first time since June 2021 that annual inflation has fallen below the ECB’s 2% target. Growth has remained sluggish, and there is increasingly obvious pressure on the European economy. Germany in particular has downgraded its growth forecasts amidst an ongoing manufacturing downturn.
“Weak consumer confidence is also weighing on the economy, and we have seen a step change in household savings despite wages continuing to outpace inflation. Europeans are now saving more than they were before the pandemic, with an average of 15.7% of household income being squirreled away in the three months to June compared to 12.3% pre-pandemic.
“At the last ECB monetary policy meeting, officials signalled that the third rate cut would be unlikely to come until December. Since then, however, the data has shown the economy has weakened further, and this has clearly had an impact on their decision making. The economy is in desperate need of stimulus, and the ECB will be hoping this third rate cut will begin to make a difference. Today’s news will at the very least bring some relief to consumers and businesses which could boost confidence and subsequently help towards the economic recovery.
“Looking ahead, the ECB will be keeping an extremely close eye on the data that comes out before its December meeting. It will be pleased that inflation has finally come in lower than target, but keeping the economy afloat will be its next challenge.”
