The European Central Bank (ECB) cut interest rates for the sixth time in nine months as it seeks to strengthen economic growth in the eurozone.
The banks have stuck to plans to lower rates in the face of economic challenges, including the threat of US tariffs and plans to boost European military spending.
The ECB has reduced its main interest rates from 2.75% to 2.5%, again reducing its forecasts for economic growth in the eurozone.
The latest cuts came as a sale of German government bonds that spread to other bond markets, including the UK.
The sale comes after Germany moved this week to increase military and infrastructure spending.
The parties in discussion will carry out shaping a new government plan to pay by loosening German fiscal rules and increasing the prospect of a significant increase in debt.
In response, the long-term German bonds saw its biggest sale in years on Wednesday.
This increased the largest daily amount since May 1997, as measured by the yield on German 10-year bonds.
Germany’s borrowing costs – continued to rise on Thursday, as measured by the yield on the country’s bonds.
Yield continued to rise on Thursday, reaching 2.929% at one point, the highest level since October 2023.
This increase has knock-on effects on other countries, and the UK’s borrowing costs are also increasing.
The UK government’s borrowing costs have already risen as concerns about sustained inflation and interest rates have not fallen as quickly as previously thought.
However, Quilters investment strategist Lindsay James said the market expects the Bank of England to make two more interest rate cuts in 2025.
As inflation approaches its 2% target, the ECB said its interest rate cuts are “making new borrowing cheaper for businesses and households.”
However, it trimmed forecasts for growth in the eurozone, slightly expanding its 2025 expansion to 0.9%, slightly surpassing the 0.7% pace recorded last year.
The ECB faces many upcoming challenges as it seeks to achieve its 2% target.
The eurozone economy could suffer if the Trump administration is moving forward with plans to impose “mutual tariffs” on all countries that tax US imports.
