Barclays sees no further ECB rate cuts before end-2026 after policy decision

Barclays has said it no longer expects the European Central Bank to lower interest rates before the end of 2026, following the bank’s decision to hold its benchmark rate steady at 2% for a third consecutive meeting.

The London-based lender had previously anticipated a quarter-point cut by December 2025 but now believes the ECB will keep monetary policy unchanged for at least another year. In a research note, Barclays wrote that the central bank “continues to convey very little, if any, conviction on whether and for how long the current stance will persist.”

The ECB maintained its main refinancing rate at 2% during its October meeting, citing stable inflation and improving euro-area growth. President Christine Lagarde said the Governing Council considered current settings to be “in a good place,” suggesting that policymakers were comfortable with holding rates for an extended period.

The revision by Barclays marks a notable shift from earlier market expectations of gradual easing through late 2025. Investors had been betting on a cut before the end of next year, but the bank’s assessment points to a longer-than-anticipated plateau in borrowing costs. Eurozone government bond yields rose modestly following the decision, reflecting reduced expectations of near-term easing.

Analysts said the ECB’s latest communication signals greater confidence in the region’s resilience. Eurozone growth has stabilised in recent months, while inflation — though subdued — remains near the central bank’s 2% target. With energy prices easing and wage growth moderating, policymakers appear to be prioritising stability over stimulus.

Elsewhere, the US Federal Reserve and the Bank of England are charting their own paths. The Fed has already cut rates once this autumn, while UK policymakers have adopted a more cautious tone. The divergence underscores a widening policy gap between major economies, one that could influence currency markets and capital flows through 2026.

For euro-area borrowers, Barclays’ outlook implies that financing costs are likely to stay elevated for longer. Businesses may face continued pressure on investment spending, while governments must contend with higher debt-servicing costs. The euro, meanwhile, has edged higher on the news, buoyed by expectations that the ECB will remain relatively hawkish in the near term.

Barclays’ economists said the next data points to watch will be euro-area inflation readings and wage growth figures due later this quarter. The ECB’s December meeting will also be scrutinised for any sign that policymakers are reconsidering the timing of rate adjustments.

With the central bank reaffirming its steady-hand approach, markets are now recalibrating to a scenario in which the ECB’s current stance endures well into 2026 — a message that Barclays says investors would do well to take at face value.