ECB cuts eurozone interest rates
Newsflash: The European Central Bank has cut interest rates across the eurozone, for the eighth time in the last year.
The ECB has lowered its three key interest rates by a quarter of one percentage point, in line with market expectations, as it tries to support an economy that has been hurt by Donald Trump’s trade wars.
It made the reduction after eurozone inflation fell below its 2% target last month, to 1.9%.
Here’s the details:
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Deposit facility, paid when banks make overnight deposits with the Eurosystem, has been cut to 2%, from 2.25%
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Main refinancing operations, charged when banks can borrow funds from the ECB on a weekly basis, has been cut to 2.15%, from 2.4%
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Marginal lending facility, charged when banks seek overnight credit from the ECB, has been cut to 2.4%, from 2.65%.
The ECB’s governing council says:
In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
Key events
ECB president Christine Lagarde is holding a press conference now in Frankfurt to explain today’s interest rate decision.
She confirms that the ECB has decided to lower its three key interest rates by 25 basis points (a quarter of one percentage point).
Lagarde then runs through the ECB’s new growth and inflation targets. She explains that the 0.3 percentage point cuts to predicted inflation in 2025 and 2026 is mainly due to “lower assumptions for energy prices and a stronger euro”.
And on growth, she says:
While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.
Higher real incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this should make the economy more resilient to global shocks.
Watch the ECB press conference live: President Christine @Lagarde explains today’s monetary policy decisions.
— European Central Bank (@ecb) June 5, 2025
Over in the US, the number of people filing new claims for unemployment support has jumped.
There were 247,000 fresh initial claims for jobless benefits in the week ending May 31, up from 239,000 in the previous week.
💼U.S. jobless claims JUST IN:
This is the second week in a row with initial claims rising above expectations:
– Initial: 247K (236K exp).
– Continuing: 1.90M (1.91M exp.) pic.twitter.com/tLexBrt3K4— Themes ETFs (@ThemesETFs) June 5, 2025
ECB rate cut: snap reaction
We’ll hear from ECB president Christine Lagarde in around 10 minutes,, when she will explain why the central bank cut eurozone interest rates today.
In the meantime, here’s some snap reaction to today’s rate cut.
Carsten Brzeski, global head of macro at ING:
The ECB has cut interest rates once again, bringing the deposit rate to 2%, from 2.25%. As the risk of inflation undershooting target has clearly increased, today’s rate cut will not be the last.
Dean Turner, chief eurozone & UK economist at UBS Global Wealth Management:
“The 25 basis point cut by the ECB at its June meeting was widely anticipated and came as no surprise to the markets, which explains the muted reaction to the decision. Attention will now turn to the upcoming press conference, where investors will be looking for any clues about the future direction of policy.
As highlighted in the statement accompanying today’s decision, we expect President Lagarde to keep the Governing Council’s options open, signalling a meeting-by-meeting approach. This stance is understandable given the multiple uncertainties facing policymakers with regards to trade in the coming months, as highlighted in the statement. However, with inflation pressures easing, we expect one final cut from the ECB at its July meeting, while continuing to flag the risk of further moves before the year is out.
David Rea, chief economist EMEA at real estate firm JLL:
This rate cut had been largely anticipated by markets. However, absent changes in US trade policy, the decision would have been far less clear cut. Eurozone inflation is low, but inflation pressures have not entirely left the system as we saw with the rise in core inflation in April. In normal times, this would most likely have led the ECB governing council to pause monetary easing. But we don’t live in normal times anymore.
US tariff changes dominate the global economic narrative resulting in a highly dynamic and unpredictable situation. GDP growth forecasts have been steadily revised down for major European countries – and the US – since the start of the year, on expectations of the negative economic effects of tariffs. And whilst higher US import levies are likely to boost inflation on the other side of the Atlantic, they increase the downside risk to inflation in Europe.
Growth forecasts for 2026 also lowered
The ECB has also trimmed its forecast for growth across the eurozone next year.
ECB economists now predict GDP will rise by 1.1% in 2026, slightly lower than the 1.2% growth forecast in March.
However, it still expects growth of 0.9% this year, and 1.3% in 2027, unchanged from its last forecasts three months ago.
The ECB says:
The unrevised growth projection for 2025 reflects a stronger than expected first quarter combined with weaker prospects for the remainder of the year. While the uncertainty surrounding trade policies is expected to weigh on business investment and exports, especially in the short term, rising government investment in defence and infrastructure will increasingly support growth over the medium term.
Higher real incomes and a robust labour market will allow households to spend more. Together with more favourable financing conditions, this should make the economy more resilient to global shocks.
ECB cuts inflation forecasts…
As well as lowering interest rates, the European Central Bank has also lowered its inflation forecast for this year, and next.
The ECB now predict headline inflation will average 2.0% in 2025, bang on its target, down from 2.3% forecast back in March.
It has also cut its inflation forecat for 2026, down from 1.9% to 1.6%.
Inflation is still forecast to average 2% in 2027.
The ECB says:
The downward revisions compared with the March projections, by 0.3 percentage points for both 2025 and 2026, mainly reflect lower assumptions for energy prices and a stronger euro. Staff expect inflation excluding energy and food to average 2.4% in 2025 and 1.9% in 2026 and 2027, broadly unchanged since March.
ECB cuts eurozone interest rates
Newsflash: The European Central Bank has cut interest rates across the eurozone, for the eighth time in the last year.
The ECB has lowered its three key interest rates by a quarter of one percentage point, in line with market expectations, as it tries to support an economy that has been hurt by Donald Trump’s trade wars.
It made the reduction after eurozone inflation fell below its 2% target last month, to 1.9%.
Here’s the details:
-
Deposit facility, paid when banks make overnight deposits with the Eurosystem, has been cut to 2%, from 2.25%
-
Main refinancing operations, charged when banks can borrow funds from the ECB on a weekly basis, has been cut to 2.15%, from 2.4%
-
Marginal lending facility, charged when banks seek overnight credit from the ECB, has been cut to 2.4%, from 2.65%.
The ECB’s governing council says:
In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.
In the energy sector, the UK has struck a deal to import Norwegian gas for the next decade.
Centrica, the owner of British Gas, has signed a £20bn agreement Equinor to buy 5 billion cubic meters of gas per year until 2035.
The deal will begin when a previous agreement, signed during the energy crisis of 2022, ends.
Centrica says the deal will provide important energy security for the UK.
Germany’s main share index, the Dax, hit a fresh record high this morning as traders anticipated a cut to eurozone interest rates this afternoon.
The Dax hit 24,399 points, before settling back to 24,336 points, up 60 points or 0.25% today.
Stocks also benefitted from this morning’s surprise increase in German factory orders in April (see earlier post).
It’s been a largely calm day on the London stock market so far.
The FTSE 100 index of blue-chip shares has gained 17 points, or 0.2%, to 8818 points. Precious metals producer Fresnillo (+4%) is leading the risers, followed by mining giant Anglo American (+3.5%).
Investors are awaiting a potential call between Donald Trump and Xi Jinping, reports Fawad Razaqzada, market analyst at City Index and FOREX.com:
The markets remain largely in a risk-on mode, even though we’ve had some weaker-than-expected US economic data this week. Yesterday saw both the ADP private payrolls report and the ISM services PMI missed expectations, adding to the disappointing manufacturing PMIs we saw on Monday.
The weakness in data has raised hopes for a sooner-than-expected rate cut by the Fed. But it is all about optimism about a potential call between leaders of the world’s two largest economy to resume trade negotiations.
Irish GDP up 9.7% (!) in January-March
Newflash: Ireland’s economy grew by a frankly blistering 9.7% in the first quarter of this year, updated data shows.
Ireland’s central statistics office has revised its estimate for Ireland’s GDP growth higher, from an initial estimate of 3.2%, due to a strong surge of exports such as pharmaceuticals as companies tried to front-run Donald Trump’s new tariffs.
However, most of this growth was due to major international companies who have based themselves in Ireland; the domestic economy grew less strongly.
The Republic’s multinational–dominated sectors grew by 12.4% in q1 2025 with domestic sectors increasing by just 0.7%.
Modified Domestic Demand (MDD), a broad measure of underlying domestic activity that covers personal, government, and investment spending in Ireland, grew by 0.8% in Q1 2025.
Assistant Director General with responsibility for National Accounts & Price Statistics, Chris Sibley, says:
“In today’s results, Gross Domestic Product (GDP) is estimated to have grown by 9.7% in January, February, and March (Q1) 2025 driven by significant growth in exports of goods.
The globalised Industry sector expanded by 17.1% in Q1 2025 compared with Q4 2024 while the Information & Communication sector posted an increase of 3.8% over the same period. Overall, the multinational-dominated sector rose by 12.4% in the quarter. There was continued growth in the domestic economy in Q1 2025 with Modified Domestic Demand (MDD) growing by 0.8% in the quarter. This was reflected in personal spending increasing by 0.6% and growth in wages of 0.9% over the same period.”
P&G to cut 7,000 jobs
Consumer goods giant Procter & Gamble has announced plans to cut 7,000 non-manufacturing jobs as part of an effort to improve productivity and fend off economic uncertainty.
P&G says it plans to cut 15% of its current non-manufacturing workforce over the next two years, but is not yet revealing how the axe will fall across its sites. P&G’s brands include Pantene hair products, Pampers nappies, Ariel and Lenor washing products and Fairy liquid.
Andre Schulten, P&G’s chief financial officer, and Shailesh Jejurikar, chief operating officer, revealed the plan at a Deutsche Bank conference.
They said:
Plans will be implemented over the next two fiscal years, allowing us appropriately sequence the delivery of important innovation and operational projects.
As we do this, our top priority remains delivering balanced growth and value creation to delight consumers, customers, employees, society and shareowners alike.
UK car sales: What the experts say
Here’s some reaction to this morning’s data showing that UK car sales rose in May, but Tesla registrations slumped by a third.
Ian Plummer, commercial director at Auto Trader:
“Despite recent geopolitical volatility, the fundamentals of the car market remain sound and the sharp rise in electric vehicle sales against last year demonstrates real momentum. Electric demand is being driven by new affordable models like the Renault 5 and the Hyundai Inster, along with fast growing Chinese brands like BYD and OMODA-JAECOO, which will be key to mass market adoption.
Around one in four of all new cars viewed on our website is electric and we know that when the price is right, drivers are keen to make the switch.”
John Cassidy, managing director of sales at Close Brothers Motor Finance:
“A slight uptick in new registrations could provide manufacturers with some optimism following a tough 6 months.
“Electric vehicle (EV) registrations continue to grow at a strong pace; though fleet registrations still skew the numbers, which still fall short of the Zero Emission Vehicle (ZEV) mandate targets. However, despite increased taxes and the removal of incentives, consumer appetite for EVs does appear to be increasing, boosted by an influx of new models coming to the market as Chinese manufacturers gain a larger market share. If the Government is to achieve its targets, it needs to ensure it doesn’t introduce any further measures which could deter potential EV buyers.”
James Hosking, managing director of AA Cars:
“The UK’s new car market delivered a solid performance in May, with registrations climbing as the industry begins to find its feet following a challenging start to the year. This growth suggests that buyers are slowly regaining confidence, aided by lower interest rates and attractive new car offers.
“The May uplift likely reflects a combination of pent-up demand from earlier in the year, strong fleet appetite, and the pull of the new 25-plate registration. These factors often combine to lift sales around this time of year, particularly for company cars and business fleets looking to take advantage of tax efficiencies.
“Private buyers remain more cautious, but the gradual improvement in borrowing conditions is helping to reduce monthly finance costs, making new models more accessible to a broader audience. It’s a fragile recovery, but a recovery nonetheless.
Sue Robinson, chief executive of the National Franchised Dealers Association (NFDA):
“The impact of pressures such as Employers’ National Insurance, the extension of Vehicle Exercise Duty and the Expensive Car Supplement to electric vehicles will be closely monitored moving forward as well as the uncertainty regarding the blocking/unblocking of US tariffs.
“Looking ahead, we are likely to see pressure on the new vehicle market, due to weak economic growth. We expect electric vehicles sales to continue to increase, however they still remain someway off the ZEV Mandate targets for 2025. Over many years franchised dealers have proven their resilience and this current period of economic turbulence is no difference.
“NFDA is looking ahead to the Government’s Spending Review next week and it provides a prime opportunity to clarify its objectives to reach the ZEV Mandate and wider net zero targets.”
Photo: Reynolds and Šefčovič in Brussels
UK construction firms cut jobs at fastest pace since August 2020
Ouch. UK construction companies are cutting jobs at the fastest rate since the first Covid-19 lockdowns.
Employment numbers across UK construction firms fell at the fastest pace since August 2020 last month, as builders shed workers following a slowdown in activity.
The use of subcontractors fell by the most since May 2020.
The latest S&P Global UK Construction PMI, just released, also shows that activity fell at a slower rate last month, as output and new orders both continued to decline.
House building was the weakest-performing segment, indicating that the government’s efforts to drive a surge of new homes is struggling.
The construction PMI has risen to 47.9 in May, up from 46.6 in April, showing that the sector shrank again, but at a slower rate (50 points signals stagnation).
Tim Moore, economics director at S&P Global Market Intelligence, says:
“The construction sector continued to adjust to weaker order books in May, which led to sustained reductions in output, staff hiring and purchasing. However, the worst phase of spending cutbacks may have passed as total new work fell at a much slower pace than the near five-year record in February.
Housing activity was the weakest-performing segment in May as demand remained constrained by elevated borrowing costs and subdued confidence. Commercial work was close to stabilisation after a marked decline in April, suggesting that fears about domestic economic prospects have abated after the initial shock of US tariff announcements.
Construction output continues to trudge along, last month at a slightly less dismal pace than previous months, largely due to commercial work picking up its workload. Meanwhile, new housing sped up its output descent in response to weak demand. As a result the construction sector… pic.twitter.com/qLYOTPEd54
— Emma Fildes (@emmafildes) June 5, 2025
