European Central Bank cuts interest rates by 0.25 percentage points
The European Central Bank has cut its key interest rate by 0.25 percentage points to 2.75% in an effort to stimulate growth in the struggling eurozone economy.
The rate-setting governing council has now cut interest rates five times since the start of summer 2024.
The cut was widely expected by financial market traders and economists as the ECB responds to weak growth in the eurozone’s key economies. Eurozone GDP did not grow in the last three months of 2024, according to a preliminary reading published on Thursday.
The bank’s president, Christine Lagarde, will give more details of the reasons behind the rate cut at a press conference at 1:45pm GMT.
Key events
ECB: inflation ‘on track’ while economy faces ‘headwinds’
The European Central Bank has said that “the disinflation process is well on track”, suggesting that it is comfortable with cutting interest rates.
The bank noted that the eurozone “economy is still facing headwinds but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time”.
On inflation, it said:
The disinflation process is well on track. Inflation has continued to develop broadly in line with the staff projections and is set to return to the Governing Council’s 2% medium-term target in the course of this year. Most measures of underlying inflation suggest that inflation will settle at around the target on a sustained basis. Domestic inflation remains high, mostly because wages and prices in certain sectors are still adjusting to the past inflation surge with a substantial delay. But wage growth is moderating as expected, and profits are partially buffering the impact on inflation.
And on the broader economy’s performance, it said:
The Governing Council’s recent interest rate cuts are gradually making new borrowing less expensive for firms and households. At the same time, financing conditions continue to be tight, also because monetary policy remains restrictive and past interest rate hikes are still transmitting to the stock of credit, with some maturing loans being rolled over at higher rates. The economy is still facing headwinds but rising real incomes and the gradually fading effects of restrictive monetary policy should support a pick-up in demand over time.
You can read the full statement here.
European Central Bank cuts interest rates by 0.25 percentage points
The European Central Bank has cut its key interest rate by 0.25 percentage points to 2.75% in an effort to stimulate growth in the struggling eurozone economy.
The rate-setting governing council has now cut interest rates five times since the start of summer 2024.
The cut was widely expected by financial market traders and economists as the ECB responds to weak growth in the eurozone’s key economies. Eurozone GDP did not grow in the last three months of 2024, according to a preliminary reading published on Thursday.
The bank’s president, Christine Lagarde, will give more details of the reasons behind the rate cut at a press conference at 1:45pm GMT.
Let’s get the lay of the land ahead of the European Central Bank’s interest rate announcement at 1:15pm GMT.
Economists and investors will be taken by surprise if the ECB does not cut its deposit rate by 0.25 percentage points (25 basis points), down to 2.75% from 3%.
The bank, led by Christine Lagarde, cut interest rates four times in 2024, down from 4%. The most recent cut was in December last year.
The ECB is expected to continue further down that path this year, as many of Europe’s major economies struggle with tepid growth and political volatility.
Jim Reid and analyst colleagues at Deutsche Bank said that a 25 basis point cut is widely expected. They wrote:
So the bigger question will be how long they’ll continue to cut rates, particularly with core inflation still lingering above 2%. For today, our European economists share that view expecting another 25bp cut, and think the description of the policy stance will be unchanged relative to the last meeting in December. However, the main risk for them is that the ECB will tweak the description of recent data in a hawkish-leaning direction.
Another key issue will be the judgement from Lagarde on the likely impact of Donald Trump’s tariff policy – although given that his administration has not revealed any details there will be some uncertainty from the ECB.
Holger Schmieding, an economist at Berenberg, an investment bank, said:
For the Eurozone, the impact of US tariffs would show up mostly in less growth rather than in changes in prices. As a rough guess, a 10% US tariff on all imports from the Eurozone and the ensuing uncertainty about future US-EU commercial relations could reduce Eurozone growth by 0.3-0.5 percentage points within one year after the start of such a trade war. For the ECB, this would be an argument to cut rates below the 2.25% which we currently project as the trough for the deposit rate.
FTSE 100 hits new record high after company profits
New FTSE 100 record high klaxon! The FTSE 100 is up 0.5%, touching a new high of 8,600.81 points.
St James’s Place and Airtel Africa are the biggest movers on strong results, as explained earlier – both are now up more than 9%. Airline EasyJet is also up by 4%.
But investor payouts from Shell, a true heavyweight in terms of market capitalisation, are one of the biggest drivers of the benchmark index’s increase.
Before the European Central Bank’s interest rate announcement at 1:15pm GMT (2:15pm in Frankfurt), let’s have a quick round-up of some of the US tech results from last night.
Questions over multibillion-dollar spending on AI still hang over the US big tech, spurred by Chinese start-up DeepSeek’s shock to the US stock market just days ago. But the companies still reported relatively solid earnings.
Microsoft beat market expectations with earnings per share of $3.23, an increase of 10% on a year earlier. Chief executive Satya Nadella was bullish about the prospects for AI spending. Its share price fell 4.2% ahead of the Wall Street opening bell.
Tesla shares are up 2% in pre-market trading after the electric carmaker’s boss, Elon Musk, said that the cheaper Cybercab model would start production next year. Musk’s vocal support for Donald Trump has been a key driver of the company’s stock market surge since November.
Facebook owner Meta’s share price has risen 1.2% pre-market after it beat fourth-quarter revenue estimates. However, it predicted sales in the first quarter of 2025 might miss estimates. Its results were somewhat overshadowed by the news that it had agreed to pay Donald Trump $25m to settle a lawsuit. Meta boss Mark Zuckerberg has sought a closer relationship with Trump.
American Airlines shares are down in pre-market trading, after one of the company’s aircraft, carrying 60 people, collided in mid-air with a US Army helicopter in Washington DC.
Local media have reported that at least 30 bodies have been recovered from the Potomac river, where the plane crashed after the collision.
Video footage shows the two aircraft colliding in the darkness, with an explosion before both aircraft fell.
American Airlines shares are down 2.7% in pre-market trading, according to MarketWatch data. So far there is no indication of any fault on the part of the airline, with investigations into the disaster at an early stage.
Jillian Ambrose
Shell has given its investors a multibillion-dollar windfall despite reporting weaker-than-expected profits of $23.7bn (£19bn) for last year as global oil and gas prices tumbled.
Shareholders of Europe’s biggest oil company are in line for a 4% dividend increase alongside share buybacks of $3.5bn for the last three months of the year.
This marks the 13th consecutive quarter in which Shell has given its investors buybacks of more than $3bn, despite falling earnings from its oil and gas.
The company reported adjusted annual earnings of $23.7bn for 2024, narrowly missing the forecasts of City analysts who had expected an annual profit of just over $24bn for the year.
You can read the full report here:
US economic data is also due later today, during the European Central Bank’s press conference.
Unlike Europe, the US GDP data is expected to show an economy that was performing well during the last full quarter under former president Joe Biden. Economists expect the data to show growth of 2.6% during 2024.
That has not stopped Donald Trump from griping about the Federal Reserve’s decision last night to leave its interest rates on hold.
Posting on his social network, Trump wrote:
Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing
Trump has previously called for the Federal Reserve to cut interest rates. That makes his complaint about the Fed’s handling of inflation somewhat contradictory: the central bank held interest rates steady rather than cutting in an effort to push inflation down.
And many economists believe that several of Trump’s policies could themselves be inflationary. Most notably, tariffs are almost always passed onto consumers directly, raising prices of imports or forcing them towards higher-priced products from their home country.
Jerome Powell, the Fed chair, last night declined to provide “any response or comment whatsoever” on the president’s public demands for lower rates. During a press conference, he said:
The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals.
If the European Central Bank does not cut interest rates this afternoon it would count as a real shock.
The eurozone economy is already struggling, and the prospect of US tariffs further hitting growth is adding to worries for politicans and central bankers.
Neil Birrell, chief investment officer at Premier Miton Investors, said:
Eurozone GDP stagnated in the fourth quarter, yet again showing that the economy is in need of some stimulus. It’s a tough outlook globally at present and uncertainty over White House policy measures aren’t helping. The political issues in Germany and France are adding to the strain, creating a cocktail that is making it difficult for businesses and consumers alike. The ECB will no doubt step up the plate to help out.
The euro has edged down today, with most of the movement coming at 9am after the weaker-than-expected German GDP reading.
But it has not been a dramatic shift: the euro is down 0.1% against the US dollar at $1.04. Traders will wait for Christine Lagarde’s comments at the European Central Bank press conference this afternoon.
Against the pound the euro has fallen by 0.2%. A pound buys €1.20.
