11 September 2025
If you are covering the ECB’s latest interest rate decision, please see the following comment from Lindsay James, investment strategist at Quilter:
“The European Central Bank has continued its pause in its rate cutting cycle, leaving interest rates at 2%. This marks the second consecutive hold on rates following what had been a rather aggressive year long pattern of rate cuts.
“Soon after the previous monetary policy meeting, the EU agreed its trade deal with the US that placed blanket 15% tariffs on EU exports to the US. In the time since, inflation has held close to the 2% target and the unemployment rate has reached record lows of 6.2%. However, growth has continued to falter, not helped by successive political upheavals, trade uncertainty and an ongoing competitive threat to vital sectors of manufacturing from China and elsewhere. That being said, recession has been largely avoided and 2026 may prove to be a turning point with €1 trillion of spending beginning to be unleashed in Germany on its well-publicised industrial renewal. While some economists are anticipating a substantial 2% boost to GDP, structural challenges remain to international competitiveness, and there are no easy fixes.
“Meanwhile, France faces further challenges with yet more political upheaval. There is little expectation that the latest iteration of government will be any more able than its previous constructs to unite the three disparate blocs in making the necessary cuts to government spending, delaying any eventual recovery.
“The ECB staff projections reflect this ongoing uncertainty. While overall they are similar to those shared in June, growth in 2025 is now expected to be 1.2%, up from 0.9% in June. The projection for 2026 has come in slightly lower at 1.0%, and the 2027 figure is unchanged at 1.3%. They also see inflation averaging at 2.1% this year, followed by a fall to 1.7% next year and a slight uptick to 1.9% in 2027.
“Nonetheless, the ECB seems increasingly likely to want to bide its time, so unless something changes drastically, interest rates are widely expected to remain at 2% for the remainder of the year.”
