European Central Bank forecast to cut interest rates to 2.5% in 2025 [Video] #UKFinance

A new forecast has predicted that European Central Bank interest rates will be cut to 2.5% next year, as inflation for the bloc moderates at 2% by the second half.

The research by S&P Global Ratings also forecasts that as the economy of the eurozone improves, the central bank will look at cutting rates once a quarter until the deposit rate reaches 2.5% in the third quarter of 2025.

Overall, the research expects eurozone GDP growth of 0.8% this year and 1.3% next year, largely in line with its previous forecasts of 0.7% and 1.4%, respectively.

Regionally, S&P is looking at stronger growth for Spain and France this year, and weaker growth for Germany. Consumer spending, and from next year, investment, should become the main drivers of GDP growth as real income growth accelerates, consumer perceptions of disinflation improve, and interest rates fall, it said.

The forecasts come as economists and investors across the world have watched closely for signals on potential rate paths by major central banks.

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Traders have upped the odds of an interest rate cut by the ECB in recent weeks. Bloomberg reported that money markets imply a roughly 55% chance of a quarter-point reduction in October, up from around 20% last week.

Last week, fresh data showed that inflation in the Eurozone fell to a three-year low of 2.2% in the year to August, confirming a flash estimate earlier in the month.

The reading remains above the ECB 2% target despite the ECB cutting interest rates.

Meanwhile, the Consumer Price Index (CPI) came down from 2.6% in July, Eurostat said on Wednesday, while inflation across the European Union was at 2.4%, down from 2.8% in July. A year earlier, the rate was 5.9%.

The ECB cut interest rates for the second time this year in September, bringing its main rate down to 3.5% from 3.75%.

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