Eurozone interest rate cut expected; Tesla’s UK sales fall by a third – business live

The European Central Bank is widely expected to cut its key interest rates by 25 basis points today, lowering the deposit facility rate to 2% in response to eurozone inflation falling to 1.9%, below the ECB's 2% target. Markets have priced in this cut with near certainty, and investors will be closely watching the ECB's updated growth and inflation forecasts, which are expected to be revised downwards. There is also anticipation that the ECB may signal a pause in rate cuts over the summer before reassessing the economic situation in September.

Analysis

The European Central Bank is poised to implement an anticipated 25-basis-point interest rate cut, reducing its deposit facility rate to 2.0%, a response to Eurozone inflation dipping to 1.9% and ongoing economic pressures exacerbated by trade tensions. This move, largely priced in by markets, marks the eighth reduction in a year, with Lazard Asset Management forecasting rates could reach 1.5% by year-end, although markets project a slightly less dovish 1.6%. Investor focus will be on the ECB's revised growth and inflation outlooks and any signals of a summer pause in its easing cycle. Amidst this, Ireland reported a striking 9.7% Q1 2025 GDP surge, primarily driven by multinational export front-loading ahead of US tariffs, contrasting with a modest 0.8% growth in Modified Domestic Demand. German factory orders for April unexpectedly rose 0.6%, defying tariff concerns with a 2.2% increase in domestic orders. In the UK, May car sales increased 1.6% year-over-year, though Tesla registrations plummeted 36% while Chinese EV maker BYD saw a 400% surge; overall EV registrations grew 25%. The UK construction sector continued to contract in May, with the S&P Global UK Construction PMI at 47.9, and employment falling at its fastest pace since August 2020, particularly in house building due to high borrowing costs. Conversely, UK house sales agreed in May were the busiest since March 2022, up 6% year-over-year nationally according to Rightmove. Corporate developments include Procter & Gamble's plan to cut 7,000 non-manufacturing jobs to boost productivity amidst economic uncertainty, and Wizz Air reporting a 61% drop in operating profit due to engine-related aircraft groundings, causing its shares to fall 24%. Fintech Wise announced its intention to switch its primary listing to New York, citing access to deeper capital markets, a trend also seen with other UK firms. Mitie Group has launched a £366m takeover bid for Marlowe to expand into the facilities compliance market. Additionally, the UK's Office for National Statistics acknowledged a 0.1 percentage point overstatement in April's CPI due to a data error, which will be corrected in future calculations. Both UK and EU officials are advocating for WTO reform amid global trade system critiques, with the EU emphasizing a rules-based approach while rebalancing its relationship with China.

Key Decisions for Investors

• Given the ECB's rate cut is fully anticipated, investors should scrutinize forward guidance on the pace of future easing, particularly in light of persistent trade uncertainties and the potential for a summer pause in cuts.
• Investors should closely monitor the UK's mixed economic signals, such as the fragile recovery in car sales and housing transactions against a backdrop of declining construction employment and cautious private buyers, necessitating a nuanced view on UK-exposed assets.
• The significant divergence in the EV market, with Tesla's declining UK sales contrasting sharply with BYD's rapid expansion, alongside the trend of UK companies like Wise seeking US primary listings, warrants a strategic review of sector-specific and UK market allocations.
• Company-specific risks and opportunities remain prominent; for instance, Procter & Gamble's restructuring aims for long-term efficiency gains, while Wizz Air's significant operational challenges highlight vulnerability to supply chain issues, underscoring the need for diligent due diligence on individual holdings.