ECB RAISES INTEREST RATES FOR FIRST TIME SINCE 2023

The European Central Bank has raised interest rates by 0.25 percentage points, bringing its benchmark rate to 2.25 per cent. The decision marks the first time the ECB has increased borrowing costs across the eurozone since September 2023. The ECB also became the first central bank in the G7 to raise rates in response to the war in the Middle East. Christine Lagarde told reporters the decision was driven by a "major energy shock" that was lasting longer than expected and beginning to spill over into the wider economy.

According to the ECB, eurozone inflation rose to 3.2 per cent last month, with rising energy costs linked to the Middle East conflict cited as a primary driver. The ECB revised its inflation outlook upwards, now expecting headline inflation to average 3 per cent this year, falling to 2.3 per cent in 2026. Growth projections were revised downwards, with the ECB forecasting expansion of 0.8 per cent this year and 1.2 per cent next year — both figures 0.1 percentage points lower than its March estimates. The ECB stated the rate rise left it "well positioned to navigate the uncertainty caused by the war" and said it would "closely monitor the situation."

The Bank of England's Monetary Policy Committee is scheduled to vote on the UK base rate the following Thursday, 19 June 2026. Mortgage borrowers and savers will learn the outcome of that decision at that point. The ECB's move adds pressure on the Bank of England as policymakers weigh the impact of rising global energy costs on domestic inflation. Andrew Bailey will be among those voting on the decision.