“Inflationary pressures are starting to resurface in Europe with fresh supply‑chain disruptions pushing up costs. At the same time, the eurozone’s services sector is beginning to lose momentum. A sharp fall in consumer confidence suggests households will remain cautious, limiting spending and weighing further on services demand.
“Tourism also faces headwinds, with shortages of jet fuel likely to drag related sectors down over the summer. These developments leave the ECB with limited room to raise rates further this year.
“Against this backdrop, market pricing looks too aggressive, with investors expecting two ECB rate hikes this year. As growth risks intensify, this looks increasingly unlikely. The ECB will monitor upcoming wage data closely for signs of second‑round effects, but softer services activity should ease labour market tightness and limit sustained wage pressures.”
Commenting on today’s interest rate decision from the European Central Bank (ECB): Irene Lauro, Senior Economist – Europe and Climate at Schroders