ECB leaves interest rates on hold

The European Central Bank left interest rates unchanged on Thursday, as widely expected.

The bank’s governing council, meeting in Frankfurt, left the main financing rate at 4.5%, the deposit facility rate at 4% and the marginal lending facility at 4.75%.

It noted: "While inflation has dropped in recent months, it is likely to pick up again temporarily in the near-term.

"Inflation is expected to decline gradually over the course of the next year, before approaching the 2% target in 2025."

The ECB now expects headline inflation to average 5.4% in 2023, 2.7% in 2021, 2.1% in 2025 and 1.9% in 2016.

Previously it forecast inflation to average 5.6% this year.

Claus Vistesen, chief Eurozone economist at Pantheon Macroeconomics, said: “The ECB is offering little in the way of a pivot here. Granted, the central bank acknowledges that inflation is now falling quickly, but cautions against a temporary pick up in the near term.

“The fact that the ECB is now seeing inflation below 2% in 2026 is a dovish signal, but this is moderated by a core inflation forecast still above 2%.

“We think that the central bank will have to make a much stronger change in January and March as inflation comes down further.”

Alex Livingstone, head of FX and trading at Titan Asset Management, said: “The market continues to ignore the ECB’s higher for longer rhetoric, as investors begin got question if the Federal Reserve will cut first, given Jay Powell’s dovish twist yesterday.

“Given the particularly weak Eurozone inflation prints over the past three months, it looks as if any additional rate hikes are well and truly off the table, with the ECB set to remain cautious about cutting rates, given the long and variable lags of monetary policy.”

On Wednesday, the Fed left rates unchanged but signalled it would begin cutting rates in 2024.

The Bank of England on Thursday also left rates unchanged, but it adopted a more cautious approach to inflation, with three members of the nine-strong Monetary Policy Committee voting for an increase.

Inflation current stands at 4.6% in the UK, in contrast to the Eurozone's 2.4%.