The European Central Bank became the first central bank to raise interest rates over inflation brought by the war with Iran. The bank announced on Thursday that it was raising three key ECB interest rates by 25 basis points to keep inflation under control at 2% in the medium term.

The eurozone economy is now expected to grow by 0.8% in 2026 and 1.2% in 2027, down from forecasts of 0.9% and 1.3% issued three months ago, the ECB said following its June policy meeting. The bank slightly raised its 2028 growth forecast to 1.

Alongside an anticipated interest-rate hike on Thursday, the central bank is expected to raise its inflation forecast from March, which assumed a swift end to the war in Iran.

European stocks were muted as a key report on US inflation offered some relief to investors, with attention now turning to the European Central Bank’s policy decision.

The ECB is expected to raise rates by 25 basis points as higher energy prices drive inflation and raise concerns about broader price pressures.

The financial markets continue to be glued to subjects outside their usual purview – developments in the Middle East, whatever President Trump says or does, and whatever happens to the oil price.