The initial euphoria surrounding expectations of an early rate cut by the European Central Bank (ECB) waned as December’s inflation figures confirmed a jump in the inflation rate, nearing 3%.
Analysts, initially eyeing a potential rate cut in March, are now recalibrating predictions to April, June, or even September. The ECB, led by President Christine Lagarde, maintained its stance that borrowing costs would stay ‘higher for longer,’ cautioning against premature celebration over defeating inflation. Global equities experienced a setback, and government bond yields rose as the prospect of imminent rate cuts dimmed.
Analysts suggest that expectations of early rate cuts may have been overstated, emphasising that inflation remains a significant challenge. The precarious global picture, influenced by wage movements and international conflicts, adds uncertainty to future interest rate decisions.
The growth conundrum, with slowing economies like China and Germany, could prompt the ECB into action, though the timing remains uncertain. Mortgage holders, especially those on tracker mortgages, had anticipated relief from a rate cut, but the impact on non-tracker mortgage products remains uncertain as banks may not pass on the cuts in full. Despite initial optimism for declining borrowing costs in 2024, market dynamics suggest a more cautious outlook.
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