British investment bank Barclays has projected that the European Central Bank (ECB) will deliver another 25-basis-point interest rate hike in December, citing persistent inflation pressures and surging energy costs.
Key Drivers Behind the Forecast
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Energy and Geopolitical Pressures: Ongoing conflicts and disruptions affecting key shipping and energy assets in the Middle East have driven crude oil prices back above $100 a barrel. For the energy-dependent eurozone, this has sparked renewed fears of imported inflation.
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Prolonged Inflation Outlook: The forecast follows an ECB policy meeting where rates were raised by 25 basis points. Updated central bank projections indicate that inflation will likely remain above its 2% target for an extended period, not fully returning to target until late 2027.
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Market Pricing: Financial markets have reacted swiftly to the shifting outlook. According to LSEG data, traders are pricing in roughly a 94% probability of a quarter-point rate increase from the ECB by December. Goldman Sachs has echoed a similar outlook, noting that another hike would push rates into mildly restrictive territory.
While market watchers see little chance of a policy shift during the October meeting—allowing policymakers time to evaluate incoming data—Barclays expects the ECB to use its December gathering to enact further tightening.
