The European Central Bank (ECB) hiked interest rates 0.75% on Thursday as the institution warned of a gloomy economic outlook across the continent.
The ECB warned it would likely raise interest rates higher over its next several meetings in a move to dampen soaring inflation.
Eurozone inflation has been predominantly driven by spiking energy and food prices, alongside supply bottlenecks and rising demand from economic reopening after Covid.
The Bank highlighted Eurostat’s flash estimate for inflation of 9.1% over August, and revised its inflation expectations to 8.1% in 2022, 5.5% in 2023 and 2.3% in 2024.
Growth is projected to stagnate across the Eurozone in HY2 2022 and into Q1 2023, linked to rising energy prices and reduced consumer purchasing power.
“The ECB has raised rates by an unprecedented 0.75% in response to the recent surge in inflation, ratcheting up the pace of policy tightening as both the Fed and BOE have done in recent months,” said Kingswood strategist Rupert Thompson.
“It is very much prioritising getting inflation back under control even as the economy looks headed into recession later this year.”
“This move can only add to the pressure on the Bank of England to follow suit with a 0.75% rise next week, particularly with the news today of the Government’s large scale intervention to cap household and business energy bills.”
The ECB also confirmed expected economic growth of 3.1% in 2022, 0.9% in 2023 and 1.9% in 2024.
The European Central Bank further noted the lasting impact of Covid on the economy, which remained a risk to the smooth transition of the Bank’s monetary policy.