Thursday’s bonanza of four European central banks announcing interest rate decisions was as expected: the European Central Bank, Norges Bank, and Riksbank held their rates, while the Bank of England cut.
But there were hints at what’s ahead for 2026. Here are four key takeaways.
1. The BoE voted to cut, but only just
The markets thought the BoE’s rate cut was a done deal, with futures markets suggesting an almost 98% chance of one. But the vote to cut by 25 basis points was by the narrowest of margins: 5-4. A number of officials called for caution, citing continued risks to inflation.
Rate setter Meghan Greene, who was among the four opposing a cut, argued there were signs inflation for services was at risk of spiking, while inflation for core goods remained at pre-Covid levels.
Barclays U.K. Chief Economist Jack Meaning told CNBC the bank had delivered a “hawkish cut,” adding the bar could be higher for future cuts.
2. The ECB projections seem to justify the hold
The ECB’s latest projections seem to have backed up European officials who have said rates are in a “good place,” with the growth outlook upgraded and inflation seen returning to the 2% target in 2028.
President Christine Lagarde said the Eurozone’s economy has been “resilient”, while Al Cattermole, Mirabaud Asset Management fixed income portfolio manager, said the outlook was “slightly hotter” than expected, and means the committee will “lean more towards that hawkish edge.”
3. But its next decision could be a hike
The ECB leaving its policy rate unchanged came as little surprise to investors, with resilient economic data suggesting rates will remain on pause.
But investors say that, by raising its growth outlook for the euro zone, the bank may have laid the groundwork for its next move to be a rate hike, as hinted at by governing member Isabel Schnabel.
Schnabel told Bloomberg that she was “rather comfortable” with expectations that the next move could be a rate hike, “albeit not any time soon.”
“The prevailing narrative is that the rate-cutting cycle has largely run its course and that Europe’s growth momentum now lies primarily in fiscal policy. Some even suggest that the ECB could begin raising policy rates again by the end of 2026,” noted Kevin Thozet, a member of French asset manager Carmignac’s investment committee.
4. Don’t expect Riksbank to move rates soon
Sweden’s Riksbank boosted its economic outlook, now seeing 2.9% growth next year, compared to the 2.7% it previously expected.
That has cemented expectations the central bank won’t move rates anytime soon – with officials forecasting an eventual move higher after staying on hold throughout next year.
Riksbank Governor Erik Thedéen told CNBC that Sweden is in “a fairly good place,” with growth picking up, while SEB Chief Economist Jens Magnusson said the country had “one of the most promising growth cases for next year.”
