ECB raises interest rates to 2.5% and warns Iran war is fuelling inflation
Borrowing costs climb in Europe and oil tops $105 a barrel as bank says growing price pressures in eurozone will be ‘longer lasting than we had anticipated’
TL;DR
- The European Central Bank (ECB) raised its main interest rate to 2.5%, the highest level since March last year.
- The central bank warned that the risk of higher inflation over the next year has risen due to renewed fighting in the Middle East.
- Government borrowing costs have increased, with yields on UK, US, and European bonds climbing.
- Oil prices touched $105 a barrel, and British and European gas prices also saw significant increases.
- The ECB lifted its eurozone economic growth forecast for 2026 to 0.9% but expects inflation to average 3% this year.
- Concerns exist about potential gas shortages in the UK and EU due to delayed storage filling and the ongoing Middle East conflict.
- The US Treasury announced a $6bn buyback of government debt, but it was considered insufficient by bond buyers, leading to a three-year high in 10-year treasury yields.