ECB Cuts Rates to 2% in Eighth Reduction in a Year as Eurozone Reels from Trump Trade Wars

The European Central Bank cut its deposit rate from 2.25% to 2% on 5 June 2025, making its eighth quarter-point reduction in a year as the 20-member eurozone reeled from the damage caused by US President Donald Trump's trade wars, The Guardian reported. The cut brings eurozone borrowing costs to less than half the level in the United Kingdom, where the Bank of England stands at 4.25%, and well below the United States Federal Reserve range of 4.25–4.5%.

Key details

• Deposit rate cut from 2.25% to 2.00% — eighth reduction since June 2024
• Eurozone inflation fell to 1.9% in May, below the 2% target for the first time since September
• Inflation forecast to fall to 1.6% in 2026 before returning to 2%
• Vote was "virtually unanimous" — only one governing council member dissented
• Growth slowing especially in France, Germany and Italy
• Rising government defence and infrastructure spending expected to partly offset trade war damage

Lagarde's assessment

ECB president Christine Lagarde said: "A strong labour market, rising real incomes, robust private sector balance sheets and easier financing conditions should all help consumers and firms withstand the fallout from a volatile global environment." Asked whether she was confident about the outlook, she replied: "Are we confident? I think that would be a bit far-fetched. But we are well-positioned at the moment."

Lagarde warned that while manufacturing had strengthened according to recent data, the domestically focused services sector was slowing. She said it was difficult to know whether rates would need to fall further during a period of "significant uncertainty" in the global economy.

Analyst reaction

Mark Wall, Deutsche Bank's chief European economist, said the central bank might make further cuts if the trade war hurt eurozone exporters more than expected: "The trade war is inherently unpredictable. The inflation undershoot could deepen and persist." Irene Lauro, eurozone economist at Schroders, said the stable inflation outlook meant "the ECB can afford to shift from urgency to patience."

The ECB also noted that while US tariffs would hit growth, extra government spending on defence would fill some of the gap: "Rising government investment in defence and infrastructure will increasingly support growth over the medium term." Lagarde dismissed suggestions she might leave the ECB early, saying she was committed to serving out her term until October 2027: "You are not about to see the back of me."