The European Central Bank Cuts Interest Rates for the Third Time in 2024

On Thursday 17th October, The ECB (European Central Bank) cut interest rates by 25 basis points to 3.25%. Analysts advised before the rate cut that financial markets had already factored in a ¼ of 1% interest rate cut as a virtual certainty. Earlier in the day figures from data released showed that headline inflation was below the benchmark target of 2% for the first time since 2021. Interestingly, this was the first back-to-back rate cut for 13 years, with the focus now shifting from bringing inflation down to protecting economic growth. The President of the ECB, Christine Lagarde, has repeated her concerns that there are still risks to growth, but a recession is not on the cards, and confirmed that the Eurozone is still look at a soft landing. 

President Lagarde also was quoted as saying that “Lower confidence could prevent consumption and investment from recovering as fast as expected”, also adding “We believe the disinflationary process is well on track, and all the information we have received in the last five weeks was heading in the same direction – down”. Officials went to say that that the outlook for the Eurozone’s economy was on a downward path, with Executive Board member Isabel Schnabel confirming this position by saying “Officials cannot ignore the headwinds to growth”.

Elsewhere, gold hit an all-time record high of USD2,688.82 per ounce with sentiment being lifted by the uncertain outcome of the US Election next month and financial markets forecasting interest rate cuts in the G7, G20 and other economies around the world. In the United Kingdom, data released showed headline inflation below the benchmark target of 2% for the first time since April 2021. The CPI (consumer price index) dropped to 1.7% down from 2.2% recorder in August of this year, with core inflation (does not include figures from the food and energy sectors) dropping quicker than the financial markets predicted. 

“Services Inflation”, the one sector the Bank of England always keeps an eye (probably the most important indicator of inflationary pressures in the domestic arena), fell to 4.9%. This is the first time since May 2022 that it has been under 5%. Analysts suggest that that these figures will spur the Bank of England into faster rate cuts. Back in Europe, with data and markets predicting that the German economy is set to shrink for the second consecutive year, and experts suggest that the ECB will cut interest rates by another 25 basis points at their meeting in December 2024 if they are serious about getting growth back on track in the Eurozone’s largest economy.