Europe cuts interest rates as Trump’s tariffs loom

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Europe cuts interest rates as Trump’s tariffs loom

The European Central Bank (ECB) has cut its key interest rate for the eighth time in just over a year as it warned about continuing pressure on the eurozone from Donald Trump’s tariffs.

The main rate has been reduced from 2.25% to 2% by the ECB, which sets rates for the countries that use the euro.

While inflation has eased across the eurozone, the economy has been sluggish even before the US president rolled out his aggressive tariff policy which has prompted threats of retaliatory taxes from the wider European Union.

The ECB said that, in the short-term, “uncertainty” surrounding trade “would weigh on business investment and exports”.

“Stronger-than-expected” economic growth of 0.3% between January and March may weaken as the year goes on, the central bank said.

On Wednesday, Trump doubled tariffs on EU steel and aluminium imported to the US from 25% to 50%.

Trump has paused the taxes on other European goods sold to the US until 9 July as talks to reach a deal continue but a 10% tariff remains in place until then.

Meanwhile, the EU has drawn up its own list of tariffs on €21bn-worth of US goods.

However, the ECB expects the economy will gather pace in the medium-term, boosted by European spending on defence and infrastructure.

Nato is pushing for members of the military alliance to commit more funding to shore up defence in Europe as Russia continues to wage a war on Ukraine.

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