Europe’s Central Banks Signal Cautious Monetary Easing Amid Divergent Rate Paths
Europe's central banking landscape is shifting, but not in unison. The Bank of England cut rates to 3.75%—their lowest since 2023—while the European Central Bank held firm at 2%. Both institutions, however, broadcast the same cautious message: the tightening cycle has peaked, but the road back to accommodative policy will be gradual.
The BoE's MOVE reflects receding inflationary threats, with energy price pressures fading and headline CPI cooling. Yet the 6-3 MPC vote split reveals persistent concerns over sticky wage growth and services inflation. Across the Channel, the ECB's inaction underscores lingering doubts about declaring victory over price stability.
For markets, the implications are clear. The era of aggressive rate hikes has ended, but traders betting on immediate returns to zero-rate policies will be disappointed. This measured approach creates a Goldilocks scenario for risk assets—sufficient liquidity to sustain rallies, but not enough to reignite inflationary spirals.
