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European consumers and businesses can look forward to lower borrowing costs, with the European Central Bank looking firmly on track to cut interest rates next week.
With inflation having fallen close to the ECB’s 2% target, several policymakers are hinting that the bank will be able to lower rates at its meeting next week.
Philip Lane, the ECB’s chief economist, said in a speech in Dublin: "At our June meeting, if our updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase our confidence that inflation is converging to our target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction."
The French central bank governor, François Villeroy de Galhau, was even more categorical, declaring a June rate cut “a done deal” unless there was a shock.
Villeroy de Galhau, who like Lane is a member of the ECB’s governing council, told Germany’s Börsen-Zeitung newspaper: “Barring a surprise, the first rate cut in June is a done deal, but afterwards we have several degrees of freedom."
A cut in June would make the ECB one of the first major central banks to lower rates in the current cycle, after the Swiss National Bank, which surprised the markets with a rate cut in March.
Currently, the ECB’s deposit facility – paid to banks who make overnight deposits with the Eurosystem – is a record high of 4%.
Its main refinancing operations, the rate banks pay when they borrow money from the ECB for one week, is 4.5%.
Annual inflation in the euro area was 2.4% in April 2024, a near three-year low, down from 7% a year before.
Meanwhile, UK retailers are declaring that shop price inflation has fallen back to “normal levels”, after the pace of price rises eased again this month.
Prices in British shops rose at the slowest pace in two and a half years in May, according to the British Retail Consortium.
It reports that annual shop price inflation slowed to 0.6% in May from 0.8% in April, the smallest increase since November 2021.
Food inflation slowed for a 13th month in a row to 3.2% from 3.4%, its lowest since February 2022, while prices of non-food goods fell by 0.8% in annual terms.
The agenda
• 11am BST: CBI distributive trades survey for May
• 2pm BST: US house price index for March
We’ll be tracking all the main events throughout the day ...
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| | | Pippa Crerar | | UK political editor |
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Once Britain is back in the EU, things can only get better