Lessons learned from the BOE, ECB, Norges Bank and Riksbank interest rate decisions

The bonanza of interest rate decisions announced by Europe’s four central banks on Thursday was as expected, with the European Central Bank, Norges Bank and Riksbank leaving interest rates unchanged, while the Bank of England cut rates.

But there were hints about the future in 2026. Here are four important points.

Markets believe the BoE has agreed to cut interest rates, with futures markets suggesting there is almost a 98% chance of a rate cut. However, the vote to reduce the rate by 25 basis points was by a narrow 5-4 margin. Many officials warned of continued inflation risks.

Rate setter Megan Green, one of the four people who opposed the rate cut, argued that while inflation in core goods remained at pre-pandemic levels, there were signs that inflation in services was at risk of surging.

Jack Mean, chief economist at Barclays UK, told CNBC that Barclays had made a “hawkish rate cut”, adding that the hurdles for future rate cuts could be even higher.

The ECB’s latest outlook appears to confirm European officials’ comments that growth forecasts have been revised upward, inflation is expected to return to the 2% target in 2028, and interest rates are in a “favorable position”.

President Christine Lagarde said the euro zone economy was “resilient”, while Al Cattermole, fixed income portfolio manager at Mirabeau Asset Management, said the outlook was “slightly more bleak” than expected, meaning the committee “leans more hawkish”.

The ECB’s decision to keep interest rates unchanged was not much of a surprise to investors, as resilient economic indicators suggest it will remain unchanged.

But investors say that by raising its outlook for euro zone growth, the central bank may be setting the stage for its next move of raising interest rates, as suggested by board member Isabel Schnabel.

Schnabel told Bloomberg he was “quite comfortable” with the expectation that the next move could be a rate hike “if not in the near future.”

“The conventional wisdom is that the rate-cutting cycle has largely run its course and that the current growth momentum in Europe is primarily driven by fiscal policy,” said Kevin Tozet, a member of the investment committee at French asset management firm Carmignac.

The Sveriges Riksbank has raised its economic forecast for next year’s growth rate of 2.9%, compared with its previous forecast of 2.7%.

This strengthens the view that the central bank will not change interest rates anytime soon, with officials expecting to keep rates unchanged through next year before eventually raising them.

National Bank Governor Erik Tedin told CNBC that Sweden was in a “pretty good situation” with growth accelerating, while SEB chief economist Jens Magnusson said the country was “one of the most promising cases for growth next year”.