London Daily

Focus on the big picture.
Friday, Sep 04, 2026

European Central Bank raises interest rates by unprecedented 75 basis points

European Central Bank raises interest rates by unprecedented 75 basis points

The eurozone's central bank announces its biggest interest rates increase as inflation sits at record levels and the 19 countries that use the euro head for a recession.

The European Central Bank (ECB) has hiked its key interest rates by an unprecedented 75 basis points, signalling that further rises are likely.

On Thursday afternoon, the bank - which makes monetary policy for the eurozone and the European Union - lifted the deposit rate from zero to 0.75% and the main refinancing rate was lifted to 1.25%, the highest level since 2011.

It comes as inflation is at a half-century high, and as the bloc heads for a likely winter recession.

In a statement, the ECB said: "Over the next several meetings the Governing Council expects to raise interest rates further to dampen demand and guard against the risk of a persistent upward shift in inflation expectations."

The bank has revised its economic forecast, projecting inflation averaging 8.1% this year, 5.5% in 2023, and 2.3% in 2024.

Inflation was initially driven by energy prices - exacerbated by Russia's invasion of Ukraine - but it is also being fuelled by the drought seen in recent months.

The ECB said: "Price pressures have continued to strengthen and broaden across the economy and inflation may rise further in the near term.

"This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB's 2% medium-term target."

The ECB has forecast GDP growth at 3.1% this year - up from the 2.8% projection it made in June, but it cut its 2023 forecast from 2.1% to 0.9%.

'Euro slide putting upward pressure on inflation'


Rob Clarry, investment strategist at Evelyn Partners, said: "While eurozone inflation has largely been driven by supply side challenges rather than excessive demand, the ECB has acted firmly as it looks to avoid expectations of higher inflation from becoming entrenched.

"Another crucial reason is to try and halt the euro's slide against the US dollar given that this has put further upward pressure on inflation.

"Fundamentally, it appears that the ECB is taking a similar stance to the Bank of England and the Federal Reserve: tackling inflation at the expense of economic growth.

'Positives we can draw on'


"While the economic outlook appears challenging there are some positives we can draw on.

"First, the eurozone has made good progress in replenishing its gas stocks ahead of winter; whether this will be enough depends on ongoing flows and the winter weather.

"Second, it looks like there's a consensus emerging around the bloc that governments need to support households by subsidising energy bills.

"Indeed, this week we saw Germany (€65bn), Portugal (€2.4bn) and the Netherlands (€16bn) announce support packages.

"This should prop up consumer spending as the eurozone looks to avoid a prolonged economic contraction."

In currency trading, the euro initially went above parity against the dollar, but has since weakened. The pound hit a fresh two-and-a-half month low of 86.95 pence per euro early in the day before recovering a little.

Newsletter

Related Articles

0:00
0:00
Close
Breeding Tropical Mosquitoes Discovered in East London
Sadiq Khan Agrees to Search of Digital Communications in Palantir Lawsuit
Scottish Protesters Call for Moratorium on AI Data Centre Expansion
Uber Drivers Bring London Class Action Over Algorithmic Management
Reform UK Accepts £4 Million Donation From Cryptocurrency Billionaire Pardoned by Trump
Justice Secretary Tightens Early Release Scheme to Exclude Manslaughter Offenders
Kemi Badenoch Reshuffles Conservative Team as Reform UK Pressure Grows
British Mortgage Rates Rise as Global Bond Sell-Off Pushes Up Borrowing Costs
UK Records Hottest Summer on Record in 2026
UK Government Urges Households to Stock Essential Supplies Ahead of Severe El Niño Risk
UK Prepares Targeted Sanctions Over Israeli Settlements in West Bank
Reform UK Faces Electoral and Police Scrutiny Over Foreign Donation Allegations
UK and France Expand Channel Migration Cooperation as Trade Tensions Surface
UK Marks Merchant Navy Day With Tribute to Civilian Seafarers
Burnham Pays Tribute to Two Police Officers Killed on Duty in Northern England
Booking.com Left Fake Downing Street Listing Online for Two Months, Which Says
Burnham and Macron to Review UK-France Cooperation on Channel Crossings
UK Business Confidence Improves Slightly but Investment Concerns Persist
Burnham Faces Pressure Over Future North Sea Oil and Gas Licences
Burnham Pushes Wider English Devolution Through ‘Number Ten North’
British Chambers of Commerce Raises 2026 UK Growth Forecast to 1%
Keir Starmer Resigns as Holborn and St Pancras MP, Triggering By-Election
UK Chancellor Faces Tighter Budget Headroom as Long-Term Borrowing Costs Rise
UK Government Weighs Thames Water Nationalisation as Financial Crisis Deepens
Prime Minister Andy Burnham Faces First Commons Questions Over Tax and Spending Plans
Eleven British Seafarers Receive Merchant Navy Medal
Which? Creates Fake 10 Downing Street Rental Listing to Expose Booking.com Vetting Weaknesses
BP Appoints New Chairman in Effort to Stabilise Leadership
Aberdeen Sells Hydrogen Bus Fleet at Heavy Loss After Green Transport Experiment
UK Records Hottest Summer on Record as Climate Change Intensifies Extreme Heat
Scotland Pledges to End Temporary Accommodation for Children and Build 111,000 Affordable Homes
DNO Agrees $396 Million Deal to Acquire Capricorn Energy
Uber and Wayve Launch UK’s First Supervised Autonomous Ride-Hailing Service in London
Britain Expected to Avoid New US Tariffs Targeting European Union
Middle East Conflict Pushes UK Energy Costs Higher and Revives Inflation Concerns
UK Growth Forecast Cut to 1% Through 2027 as Youth Unemployment Is Projected to Rise
Andy Burnham Links Weak UK Growth to Brexit in First Full Commons Session as Prime Minister
Keir Starmer Resigns as MP, Triggering Holborn and St Pancras By-Election
UK Business Confidence Improves but Remains Deeply Negative
Aberdeen Hydrogen Bus Sale Recovers Just Six Pence for Every Pound Invested
Which? Exposes Booking.com Verification Failures With Fake 10 Downing Street Listing
British Business Bank Invests Up to £46 Million in Deep-Tech Startup Fund
Scottish Government Puts Violence Against Women at Center of Legislative Program
FCA Eases UK IPO Rules to Strengthen London’s Listing Market
UK Likely to Avoid Next US Tariff Measures as Washington Targets EU
Macron Visits UK for Bayeux Tapestry Exhibition and Border Security Talks
British Chambers of Commerce Cuts UK Growth Outlook to 1% for 2026 and 2027
Keir Starmer Resigns as MP for Holborn and St Pancras, Triggering By-Election
Prime Minister Andy Burnham Unveils Devolution and Cost-of-Living Agenda
UK Borrowing Costs Surge as 30-Year Gilt Yield Reaches 5.88%
×