To support eurozone economic growth, the European Central Bank (ECB) has lowered interest rates for the sixth time in nine months. Despite economic obstacles such as fears of US tariffs and plans to increase European military spending, the ECB remained committed to lowering interest rates. The ECB decreased its main interest rate to 2.5% from 2.75% and downgraded its eurozone economic growth predictions. The latest cut occurred after a sell-off in German government bonds spread to neighboring bond markets, notably the United Kingdom.
Political parties in talks to create a new government intend to pay for this by relaxing Germany's fiscal regulations, creating the possibility of a significant increase in debt. As seen by the yields on Germany's 10-year bonds, this caused borrowing costs to rise by the largest daily amount since May 1997. Yields continued to rise on Thursday, reaching 2.929% at one time, the most since October 2023. The increase has impacted other countries since borrowing costs in the United Kingdom have risen as well.
UK government borrowing costs have already risen due to concerns about prolonged inflation and interest rates not falling as swiftly as previously anticipated. However, Lindsay James, an investment strategist at Quilters, stated that the market expects the Bank of England to lower interest rates twice more in 2025, citing "recent inflation data reasonably encouraging."
