The European Central Bank cut its key interest rate for the second meeting in a row on Thursday, after recent data showed that falling inflation is being accompanied by a weakening economy. The ECB cut its headline interest rate by a quarter of a point to 3.25 per cent after inflation in the currency bloc fell below its two per cent target.
The eurozone harmonised inflation fell to 1.7 per cent in September.
The first back-to-back rate cut in 13 years marks a change in focus for the central bank from taming runaway inflation to nurturing economic growth, which has lagged far behind that of the US for the past two years. Meanwhile, the eurozone economy is showing signs of recovery, as industrial output figures published on Tuesday signal tepid but still positive growth for the currency bloc that has been on the brink of recession for over a year.
Seasonally adjusted industrial production in the eurozone increased by 1.8 per cent in August compared to July, according to first estimates from Eurostat, the statistical office of the European Union.
In the EU as a whole, industrial production was up by 1.3 per cent. In July, industrial production fell by 0.5 per cent in the eurozone and by 0.3 per cent in the EU.
ING economist Bert Colijn said improvements in the inventory cycle will likely be more of a story for next year.
“For the manufacturing sector, this means that we don’t expect a sustained recovery to start before 2025,” he added.
Finally, in the UK, inflation fell to below the Bank of England’s two per cent target in September for the first time in more than three years, increasing the likelihood of an interest rate cut next month.
The consumer prices index, or CPI, plunged to 1.7 per cent in September, down from 2.2 per cent in August, figures published by the Office for National Statistics showed on Wednesday.
That is a bigger fall than predicted by many economists and was driven by lower air fares and petrol prices.
Core inflation, which excludes volatile food or energy prices, came in at 3.2 per cent in the year to September, down from 3.6 per cent the prior month. Services inflation – an enduring worry for interest rate setters – rose by 4.9 per cent, the smallest increase since May 2022.
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