ECB and Bank of England Hold While Energy Risks Keep Inflation Alive
Two of Europe's most closely watched central banks kept rates unchanged last week, but neither did so with any great confidence. The Bank of England kept its base rate unchanged at 3.75%. In its accompanying statement, the Monetary Policy Committee noted that the outlook for energy prices is highly uncertain. That phrase captures the essential difficulty: without knowing where oil goes, the rate path cannot be clearly mapped.
The Economic Sentiment Indicator for the eurozone fell in April to 93.5, its lowest level since November 2020, with consumer confidence particularly weak while industrial and construction confidence was more resilient. The mood across European households is darkening, driven by the same energy shock hammering Australia and Germany.
Sweden's Riksbank and Norway's Norges Bank are both expected to deliver policy decisions this week, giving markets additional data points on how Scandinavian economies are handling inflation that differs from the core eurozone picture. Norway, as an oil exporter, faces a different trade-off from oil-importing nations.
For European savers, the message from policymakers is essentially that rate cuts are unlikely in the near term. The ECB is simultaneously dealing with above-target inflation in its largest member economies and a growth outlook that has deteriorated sharply since the Iran conflict began. Until energy prices stabilise, central banks across the continent are stuck in a holding pattern. For households managing mortgages and variable-rate debt, that means higher costs persisting longer than the interest rate futures market was pricing just three months ago.
