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ECB In Similar Situation To The UK

While the European Central Bank (ECB) had been expected to reduce European interest rates later in the year it seems as though they may be suffering from the same problems as the Bank of England. While interest rates have been reduced to 4% over the last few months there were hopes that they would move even lower. However a revival in the rate of inflation seems to have given the bank very little room for manoeuvre.

Inflation across Europe rose to 3.6% in May, the largest increase in the 10 year life of the ECB, at a time when many across Europe are starting to feel the pinch. In a perfect world they would have preferred to reduce interest rates further and stimulate economic growth but the threat of rising inflation has changed the immediate outlook. While there has been no mention of rates rising yet, as we have seen in the UK, there is very little chance of further reductions in the next 12 months.

It seems as though the European consumer is in line for further financial heartache over the coming months and there is very little that the ECB or domestic banks can do about it. This is one situation which will need to run its course until the bitter end – when inflation is back under control.

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