The Bank of England (BOE) lowered interest rates by 0.25%, while the ECB kept them unchanged at 2%.
The Bank of England cut interest rates to 3.75% due to economic slowdown, while the European Central Bank kept interest rates unchanged and raised its growth forecast.
ECB maintains its stance, raises growth forecast.
At its final policy meeting of 2025, the European Central Bank (ECB) decided to keep interest rates unchanged at 2% for the fourth consecutive time. This decision received unanimous support from all members and matched analysts' forecasts.
ECB President Christine Lagarde said the Governing Council is not discussing raising or lowering interest rates in the near future, affirming that "all options are open." She stressed that the eurozone economy "has remained strong so far" in the face of challenges.
The ECB also raised its forecast for eurozone economic growth in 2025 to 1.4%, 0.2 percentage points higher than the 1.2% forecast given in September. The forecast for 2026 was also revised upwards from 1% to 1.2%. Inflation in the eurozone in November remained at 2.1%, close to the ECB's 2% target.
According to Carsten Brzeski, head of global macro research at ING Bank, the ECB is unlikely to change its policy stance anytime soon. Traders in the interest rate swap market are also betting that the ECB's easing cycle has ended, with even a small chance of an interest rate hike in 2026.
The Bank of England eased policy due to a weakening economy.
In contrast to the ECB, the Bank of England (BOE) lowered interest rates by 0.25 percentage points, bringing the policy rate to 3.75%. This marks the sixth interest rate cut since the easing cycle began in the summer of 2024.
This move comes amid clear signs of weakening in the UK economy. Recent data shows that the unemployment rate in the three months to October rose to 5.1%, the highest level in four years. At the same time, inflation in November fell faster than expected, to 3.2%.
Bank of England Governor Andrew Bailey said he saw room for "further interest rate cuts," but stressed the crucial question was whether inflation could sustainably fall to the 2% target. The Bank of England forecasts no growth in the UK economy in the fourth quarter of 2025.
Michael Saunders from Oxford Economics commented that this is a cautious easing move. The market forecasts that the BOE may cut interest rates one or two more times next year, each time by 0.25 percentage points. This trend suggests the BOE is nearing the end of its easing cycle, consistent with developments in other developed economies.
