Europe’s Central Banks likely to hold Rates, says Stavrakeva

Dr Vania Stavrakeva, assistant professor of economics at London Business School, says Europe’s central banks may not need to raise interest rates despite the latest surge in energy prices. “Weaker demand is going to be the main impact,” she notes, highlighting that consumer spending, already fragile, is likely to be more affected than energy supply.

Analysts say the current situation differs sharply from 2022, when the Ukraine war triggered steep inflation and rapid rate hikes. Today, inflation in the eurozone is just 1.9 per cent, far below previous highs, and interest rates are already higher, with the ECB at 2 per cent and the Bank of England at 3.75 per cent. Economists argue that a shorter, more contained conflict in the Middle East is likely to dampen demand rather than fuel a repeat of the 2022 energy shock.

Policymakers face uncertainty, with outcomes ranging from minimal impact if the conflict ends quickly to potential stagflation if energy infrastructure is heavily damaged. Berenberg Bank predicts that the BOE could even cut rates later this year if consumer demand softens enough to support ongoing disinflation. Both the ECB and BOE are set to announce policy decisions on March 19, with markets widely expecting them to maintain current borrowing costs while monitoring evolving risks.

Read the Wall Street Journal article by Paul Hannon here For Europe’s Central Banks, the Energy Spike Isn’t a Straight Rerun of 2022