ECB raises interest rates to 2.5% as energy shock revives inflation fears

The European Central Bank raised its deposit rate by 25 basis points to 2.5 per cent on Thursday, its response to an energy shock that has pushed euro-area inflation away from the two per cent target for a third consecutive month.

The governing council said the increase reflected the risk that higher fuel and shipping costs, driven by disruption to Red Sea and Gulf routes, become embedded in wages and services prices rather than passing through as a one-off.

Growth against prices

The decision lands with euro-area growth already soft. Manufacturing output in Germany and Italy has contracted for two quarters, and the council acknowledged that tighter policy adds to that pressure. The bank's own projections were revised to show slower growth and higher inflation into next year.

What markets expect next

Rate futures now price a further increase before the end of the year, though pricing has been volatile and shifts with each energy print.

Compiled from the European Central Bank's policy statement and staff projections and from Reuters reporting. Verification cut-off 22:30 BST on 10 September 2026.