The European Central Bank held its key interest rate at 2% on Thursday, maintaining a cautious stance amid ongoing economic uncertainty linked to U.S. trade policies. Markets had almost fully expected the decision, following a rate cut in June and earlier reductions from a 4% peak last year.
The ECB confirmed inflation remains close to its 2% medium-term target, with little change to its outlook. The bank said it would continue adopting a data-driven approach without committing to a fixed rate path.
Eurozone growth remains slow, with GDP rising just 0.1% in the second quarter, down from 0.6% previously. Trade tensions persist despite a July U.S.-EU agreement on tariffs; a 15% tariff on EU exports to the U.S. remains, and some sectors like wine and spirits are still unsettled.
Concerns grew after U.S. President Trump threatened retaliatory tariffs following the EU’s $3.45 billion fine on Google.
ECB President Christine Lagarde noted that “risks to economic growth have become more balanced” but warned trade disputes could still hamper exports and investment. She added that uncertainty has lessened but not returned to pre-pandemic norms.
Economists are divided on further rate cuts. Thomas Pugh of RSM said trade tensions and economic risks might prompt another cut later this year, while Schroders’ Irene Lauro argued the easing cycle has ended as economic recovery strengthens amid tighter labour markets.
The ECB updated inflation forecasts, expecting headline inflation to average 2.1% in 2025, dropping slightly in 2026 before rising to 1.9% in 2027. GDP growth forecasts were raised to 1.2% for 2025 but trimmed to 1% for 2026.