The European Central Bank (ECB) has kept its current interest rates, with inflation currently sitting at around the 2% medium-term target.
The ECB predict similar levels of inflation to the figures projected in June, with headline inflation set to average 2.1% in 2025, 1.7% in 2026 and 1.9% in 2027. They have confirmed their determination for the figures to stabilise at the targeted 2% in the medium term. But how will this affect the world of wealth management? We hear from a range of wealth experts and DFMs.
Katy Stoves, Investment Manager at Mattioli Woods, said:
“The European Central Bank maintained its key interest rate at 2% today. This marks the second consecutive meeting without adjustment as policymakers navigate an increasingly complex economic landscape across the Eurozone. The decision to hold rates steady has been read by some as the ECB reaching its terminal rate. Indeed, with inflation nicely hovering around the 2% target, the monetary policy stance appears to be delivering the desired price stability outcomes.
However, the rate hold comes against a backdrop of significant economic headwinds, particularly in the Eurozone’s largest economy, Germany. In addition, ongoing political uncertainty in France and the Netherlands creates additional risks that could impact both market confidence and economic performance across the currency union.
On the plus side, so far, the costs of tariffs do not appear to be feeding through to data, and with deals gradually being struck around the world, the effect of Liberation Day tariffs is likely to be less than once feared.“
Lindsay James, Investment Strategist at Quilter, said:
“The European Central Bank has continued its pause in its rate cutting cycle, leaving interest rates at 2%. This marks the second consecutive hold on rates following what had been a rather aggressive year long pattern of rate cuts.
“Soon after the previous monetary policy meeting, the EU agreed its trade deal with the US that placed blanket 15% tariffs on EU exports to the US. In the time since, inflation has held close to the 2% target and the unemployment rate has reached record lows of 6.2%. However, growth has continued to falter, not helped by successive political upheavals, trade uncertainty and an ongoing competitive threat to vital sectors of manufacturing from China and elsewhere. That being said, recession has been largely avoided and 2026 may prove to be a turning point with €1 trillion of spending beginning to be unleashed in Germany on its well-publicised industrial renewal. While some economists are anticipating a substantial 2% boost to GDP, structural challenges remain to international competitiveness, and there are no easy fixes.
“Meanwhile, France faces further challenges with yet more political upheaval. There is little expectation that the latest iteration of government will be any more able than its previous constructs to unite the three disparate blocs in making the necessary cuts to government spending, delaying any eventual recovery.
“The ECB staff projections reflect this ongoing uncertainty. While overall they are similar to those shared in June, growth in 2025 is now expected to be 1.2%, up from 0.9% in June. The projection for 2026 has come in slightly lower at 1.0%, and the 2027 figure is unchanged at 1.3%. They also see inflation averaging at 2.1% this year, followed by a fall to 1.7% next year and a slight uptick to 1.9% in 2027.
“Nonetheless, the ECB seems increasingly likely to want to bide its time, so unless something changes drastically, interest rates are widely expected to remain at 2% for the remainder of the year.”
Luke Bartholomew, Deputy Chief Economist at Aberdeen, said:
“No surprises in the European Central Bank (ECB) decision today, which was always going to involve keeping policy on hold. The more pressing question is whether the ECB has finished easing or instead is pausing briefly before delivering more cuts in the future. The economic forecasts do seem to be broadly consistent with this easing cycle now being complete. And if we continue to think the next move will likely be a hike rather than a cut, albeit that this is likely to be sometime in the future. Of course, a very big increase in French borrowing costs could still derail the eurozone’s economy and cause further easing. But explicit intervention by the ECB in the French debt market remains a long way off.”
Richard Flax, Chief Investment Officer at Moneyfarm, said:
” The ECB appears confident that the economic block can withstand the impact of President Trump’s tariffs for some more time, when it decided to hold the deposit rate unchanged at 2%. This means that the central bank sees inflation to remain stable and within its 2% target range, and the markets are pricing a less than one-third chance of another reduction this year. Looking within the block, despite the political uncertainty in France currently, the markets have remained rather stable, while German business confidence has hit the highest levels since 2022. This suggests Europe is still holding up well despite the current headwinds, and the ECB’s new forecasts are showing economic growth gradually picking up.
Fiscal drag continues to remain a concern, especially in France as there is an inability to agree on budget cuts. With a fifth prime minister in two years, France needs to look at controlling its deficit – the widest in the region.”
Konstantin Veit, Portfolio Manager at PIMCO, said:
“The European Central Bank cutting cycle is presumably complete, with inflation at target and resilient growth at trend-like levels. The 2% policy rate is likely a level considered the mid-point of a neutral range by the majority of Governing Council (GC) members.
“We tend to agree with the GC majority view and believe risk to the medium-term inflation outlook remains broadly balanced. We think the ECB will want to preserve conventional policy space and will aim to minimise the risk of having to reverse course shortly after having reached the terminal rate. Its 2025 strategy assessment provides the ECB with additional wiggle room, suggesting a somewhat higher tolerance for modest deviations of inflation from target.
“While we agree with the market pricing in some probability for additional easing, to protect an “on target” projection for 2027, we see a high chance for the cutting cycle having already concluded at the current 2% policy rate.
“Overall, we do not believe the ECB’s reaction function is geared towards fine-tuning policy, and, in our baseline, expect a prolonged period of inaction on policy rates.”
Nicolas Forest, CIO at Candriam, said:
“With interest rates now at neutral levels, the ECB has largely accomplished its immediate objective of bringing inflation under control. The central bank has shifted into pause mode and has signaled that it will take additional time to assess economic developments amid ongoing global challenges.
“Price pressures remain subdued, with the latest data showing inflation at 2.1%. A stronger euro, lower energy prices, and persistent geopolitical uncertainty are all tilting risks to the downside.
“Growth in the euro area remains modest but resilient, supported by steady consumption and investment. Policy initiatives such as the ReArm Europe plan and the German fiscal package should help cushion the impact of the recently introduced U.S. tariffs, which now apply at a 15% rate to most goods.
“Against this backdrop, the ECB is keeping all options open. Future decisions will depend on whether incoming data continues to improve modestly or whether U.S. tariffs and deteriorating economic conditions in China begin to weigh more heavily on our economy in Europe.
“Meanwhile, the interest rate gap with the Federal Reserve is expected to narrow in the coming months. With signs of a softer U.S. labor market, the Fed is projected to cut rates twice this year. That said, tariff-related price pressures could reemerge, leaving Chair Powell facing both political pressure from President Trump and a shrinking margin for policy maneuvering.”
