By James Sillars, business and economics reporter
Another interest rate cut has been announced for the countries using the single European currency.
The European Central Bank (ECB) has just revealed its eighth reduction since last year’s rate peak, taking the main deposit rate to 2%.
It marks the continuation of a strategy – aided by a weakening of inflation – to release the brakes holding back economic growth.
Euro area output, which flatlined last year, is starting to gain some traction.
Growth of 0.4% was measured for the first quarter of 2025.
Winners and losers of looming Trump trade war
Fears of a Trump trade war ahead seem to have helped some members of the bloc.
Ireland’s multi-national economy, for example, grew by a whopping 9.7% quarter on quarter, according to revised data released earlier on Thursday, as companies moved fast to beat duties.
More generally, the prospects for a EU-US trade war have clouded the outlook.
Donald Trump is threatening 50% tariffs against all imports from the EU from July.
Eurozone growth, the EU estimates, will suffer as a result of the threat, with annual growth pegged below 1% despite that stronger start.
Ireland’s performance in the first quarter is likely to see that estimate tick up.
Lower borrowing costs should help prop up demand for credit, even as the major manufacturing bases stare down the prospect of tariff damage – especially if the European Commission retaliates in the face of a trade war escalation.
The on-off, chaotic nature of the trade war to date has seen economists predict growth slowdowns in the US and UK, too.
But this is where the similarity ends.
Similarities between UK/US and Europe are limited
At 2%, the ECB’s deposit rate is well down on the core rates imposed by its counterparts in London and Washington DC.
The prospects for trade war-linked inflation have proved a barrier to US rate cuts.
The main Federal Funds rate stands in a range of 4.25%-4.5% – giving it an effective rate of 4.33%.
Bank rate in the UK stands at 4.25%.
Both countries’ central banks have been, and are being, prevented from cutting at the same pace as the ECB due to inflationary concerns.
It’s a cautious approach based on huge uncertainty.
After today’s cut, members of the ECB’s governing council may become more reluctant to go further for the time being.
An all-out trade war between the EU and the US could force the ECB to put rates back up, leaving the Bank with a certain amount of egg on its Frankfurt fascia.
It all amounts to monetary policy through the gaze of a crystal ball – one that is firmly imprinted, for the moment, with the face of Donald Trump.