ECB Cuts European Interest Rates to 3.5%

Following EU inflation falls in August to 2.2% pa from 2.6% pa in July, the European Central Bank (ECB) confirmed a further 0.25% base rate cut from 3.75%pa to 3.5%pa.

This was widely expected given inflation is falling globally and Europe doe not need a ‘shot in the arm’ to boost economic output.  Stock markets across Europe reacted although we think this may be short-lived.

Comment

Underlying inflation within the EU for services companies was up to 4.2%pa so do not expect a loosening too much of policy.  Interest rates may be near their level now for the time being as we cannot foresee any further cuts until services inflation comes down.

All eyes now to next week for the Federal Reserve and the Bank of England.  It is widely expected that the Fed will cut rates by 0.5% on Wednesday and the Bank of England will cut rates by 0.25% on Thursday.