London Daily

Focus on the big picture.
Saturday, Jul 11, 2026

Europe's central bank will allow higher inflation to hit climate goals

Europe's central bank will allow higher inflation to hit climate goals

The bank said it would do more to take the impact of climate change into its monetary policy, saying that global warming could have “profound implications” for price stability.
The European Central Bank has adopted a new approach to managing the economy that would tolerate transitory periods of consumer inflation moderately above its 2% goal, and take greater account of climate change in its forecasting and stimulus programmes.

The central bank for the 19 countries that use the euro said it was replacing its previous inflation goal of “below but close to” 2% annual inflation. The new target is described as a “symmetric” 2%.

That means it would allow a "transitory period” of above-target inflation. In theory, that would give the bank space to maintain low-interest rates and stimulus programmes such as bond purchases with newly created money for a longer period of time.

ECB President Christine Lagarde said that the new goal would give the bank more room to take “especially forceful and persistent action” in the event of an unexpected economic crisis.

Such room to maneuver is especially important when market rates are close to zero, as they are now in many instances. That means the economy could more easily slip into deflation, a crippling downward spiral of prices and falling investment, without decisive central bank intervention.

The decision moves the ECB in the same direction as the U.S. Federal Reserve, which shifted to average inflation targeting last year that could allow inflation moderately above 2% for some time.

The ECB goal is not as aggressive as the Fed's, since it would “not actively aim to run inflation above target to make up for previous shortfall,” said Andrew Kenningham, chief Europe economist at Capital Economics.

“It would have no immediate implications for monetary policy, but in the long run may imply policy would be looser for longer,” Kenningham said in an emailed research note.

In another change, Lagarde said public dialogue with citizens had convinced the bank to start counting the rise in house prices in its inflation measures to better represent consumer prices as they are relevant to households. Including owner-occupied housing in the EU's inflation index would take years, however; therefore the bank said it plans to use initial estimates of housing costs to supplement its inflation measures.

The bank said it would do more to take the impact of climate change into its monetary policy, saying that global warming could have “profound implications” for price stability. It said it would expand its economic models and statistics to better assess the effect that climate change could have on the economy.

When purchasing bonds, the bank said it could take into consideration whether the companies issuing those bonds were compliant with EU legislation implementing the 2015 Paris climate change accords. Buying corporate and government bonds is a tool the bank uses to drive down borrowing costs for businesses, households and government budgets.

Buying such “green bonds” in effect makes it cheaper to finance projects deemed to lower carbon dioxide emissions, the main greenhouse gas blamed by scientists for global warming climate change.

The bank's mandate established in the basic European Union treaty is to pursue price stability. Once that is achieved, it can pursue other goals consistent with the EU's economic policies.

The new strategy will be applied at the next ECB policy meeting on July 22.
Newsletter

Related Articles

0:00
0:00
Close
The AI Invoice Shock: Layoffs Didn't Save Managers Money — They Cost Them More
Concern: Sexually Transmitted Bacterium Among Men Develops Antibiotic Resistance
Following Massive Investor Demand: SK Hynix Raises 26.5 Billion Dollars on Nasdaq
Passenger Partially Pulled Out of Ryanair Jet After Cabin Window Fails Mid-Flight
After Four Years, and Under a Heavy Veil of Secrecy: King Charles Meets His Grandchildren, Harry and Meghan's Children
Cross-Party MPs Call for National Climate Emergency Broadcast
Bayeux Tapestry Arrives in the United Kingdom for Landmark Exhibition
United Kingdom Launches Modern Slavery Prevention Programme in Vietnam
Police Warn Against Misinformation Following Disorder in Glasgow
Pension Reform Takes Effect to Consolidate Workplace Savings Industry
Treasury and Bank of England Monitor Economy as Energy Price Pressures Ease
Government Orders Treasury Reform of Disciplinary Procedures Following Civil Servant's Death
Ofcom to Require Major Technology Platforms to Block Scam Advertisements
Labour Apologizes Over Gaza Position in Bid to Rebuild Support
High Court Rules UK-France Asylum Agreement Protection Cuts Were Unlawful
Metropolitan Police Open Murder Investigation Into Death of Former MP Ann Widdecombe
University College London Report Proposes Replacing Council Tax and Stamp Duty With National Property Tax
Treasury Places Amazon, Google, Microsoft and Oracle Under New UK Financial System Oversight Rules
Severe Heatwave Drives Dangerous Ground-Level Ozone Pollution Across Two Thirds of European Union
Westminster in Freefall as Farage's By-Election Gamble Triggers Broader Systemic Crises
Institutional Fractures and Political Volatility Reshape Britain's Domestic Landscape
Deadly Fire, Health Emergencies and Political Upheaval Shape a Volatile Global News Cycle
UK Energy Strategy Focuses on Storage and Offshore Wind to Support Renewable Transition
Regional Governments Gain Greater Role in Britain’s Infrastructure and Economic Strategy
Britain Strengthens Technology Sovereignty Through Tougher Artificial Intelligence Competition Rules
UK Government Expands Artificial Intelligence Use Across Public Services Despite Privacy Debate
UK Universities Warn of Financial Pressure After Sharp Fall in International Student Enrolment
Welsh Government Completes Rail Nationalisation With One Point Five Billion Pound Modernisation Plan
Northern Ireland Records Export Growth as Companies Benefit From Dual UK and EU Market Access
Greater Manchester Launches Two Billion Pound Plan to Convert Empty Commercial Sites Into Housing
National Grid Connects Europe’s Largest Battery Storage Facility in Yorkshire
UK Defence Ministry Plans Royal Navy Autonomous Fleet Deployment to Indo-Pacific
Scotland Approves Europe’s Largest Floating Offshore Wind Project Near Aberdeen
Competition and Markets Authority Blocks Forty Billion Pound Technology Deal Over AI Security Concerns
UK Launches Five Hundred Million Pound Artificial Intelligence Network for National Health Service Diagnostics
Bank of England Signals Possible Interest Rate Cuts After Inflation Falls Below Target
UK Government Unveils Major Wealth Tax Reform to Fund National Health Service Infrastructure Expansion
Flight Instructor Jumped to His Death — Student Landed the Plane: "You Know What You Need to Do"
The Physical and Electronic Barriers Disrupting Domestic Wireless Networks
France and Morocco Open World Cup Quarter-Finals as Collina Defends Refereeing
Prince Harry Suffers Major Court Defeat in Legal Battle Against Daily Mail Publisher
Bonnie Tyler, Welsh Singer Behind Total Eclipse of the Heart, Dies at 75
Barclays and PwC Report Examines Economic Opportunities from Financial Asset Tokenisation
Pound Sterling Strengthens as Investors Anticipate Further Bank of England Rate Increases
British Business Bank Invests Twenty-Seven Million Pounds in Kraken Technology Defence Expansion
UK Business Secretary Peter Kyle Backs State Investment Strategy Inspired by US Approach
UK Electricity System Issues Margin Notice as Heatwave Tightens Evening Supply Outlook
Labour Leadership Contest Opens as Andy Burnham Emerges as Expected Sole Candidate
Tech Pulse: The Future of AI and Screen Culture
Global News Briefing: Escalating Geopolitical Tensions and Corporate Shakeups
×