{"id":71940,"date":"2026-09-18T04:38:09","date_gmt":"2026-09-18T08:38:09","guid":{"rendered":"https:\/\/www2.stockmarketwatch.com\/stock-market-news\/ecb-signals-vigilance-as-lagarde-downplays-second-round-effects-boe-outlook-shifts\/71940\/"},"modified":"2026-09-18T04:38:09","modified_gmt":"2026-09-18T08:38:09","slug":"ecb-signals-vigilance-as-lagarde-downplays-second-round-effects-boe-outlook-shifts","status":"publish","type":"post","link":"https:\/\/www2.stockmarketwatch.com\/stock-market-news\/ecb-signals-vigilance-as-lagarde-downplays-second-round-effects-boe-outlook-shifts\/71940\/","title":{"rendered":"ECB Signals Vigilance as Lagarde Downplays Second-Round Effects; BoE Outlook Shifts"},"content":{"rendered":"<h2>Key Takeaways<\/h2>\n<ul>\n<li><strong>ECB President Christine Lagarde<\/strong> confirmed there are <strong>no signs of second-round inflation effects<\/strong> yet, maintaining a &quot;meeting-by-meeting&quot; approach to interest rate decisions.<\/li>\n<li><strong>UBS Global Research<\/strong> significantly revised its Bank of England outlook, now forecasting <strong>25 bps rate hikes<\/strong> in November 2026 and February 2027, abandoning previous calls for rate cuts.<\/li>\n<li><strong>Eurozone consumer inflation expectations<\/strong> for the three-year horizon rose to <strong>2.9% in August<\/strong>, up from 2.7%, while one-year expectations edged higher to <strong>3.0%<\/strong>.<\/li>\n<li><strong>ECB Governing Council members<\/strong> Kaasik and Kazaks signaled that further <strong>restrictive territory<\/strong> remains necessary if inflation risks persist or the baseline economic scenario materializes.<\/li>\n<li>The <strong>Eurozone current account surplus<\/strong> narrowed to <strong>\u20ac27.6 billion<\/strong> in July, down from \u20ac35.1 billion in the previous month, despite a stronger-than-expected showing from Italy.<\/li>\n<\/ul>\n<h2>Lagarde Maintains Flexible Stance Amid Promising Growth<\/h2>\n<p>European Central Bank (ECB) President <strong>Christine Lagarde<\/strong> provided a stabilizing outlook for the Eurozone economy during an interview with RTE Radio. Lagarde stated that the central bank is <strong>not seeing second-round effects<\/strong>\u2014where wage increases trigger further price hikes\u2014at this stage. She characterized recent economic growth as <strong>&quot;a bit more promising&quot;<\/strong> than previously anticipated, though she emphasized that the Governing Council will continue to decide on interest rates on a <strong>meeting-by-meeting basis<\/strong>.<\/p>\n<p>Supporting this cautious optimism, ECB Governing Council member <strong>Martins Kazaks<\/strong> noted that moving further into <strong>restrictive territory<\/strong> will be necessary if the bank&#39;s baseline economic projections materialize. Similarly, policymaker <strong>Kaasik<\/strong> stressed that the precise &quot;neutral&quot; interest rate is not the primary concern; rather, the focus remains on <strong>avoiding second-round effects<\/strong> and implementing more restrictions if inflation risks resurface.<\/p>\n<h2>Shift in Bank of England Rate Expectations<\/h2>\n<p>In a notable shift for UK monetary policy, <strong>UBS Global Research<\/strong> overhauled its projections for the Bank of England (BoE). The firm now expects the BoE to <strong>hike Bank Rates by 25 basis points<\/strong> in both November 2026 and February 2027. This marks a hawkish reversal from their prior forecast, which had anticipated <strong>two rate cuts<\/strong> in early 2027.<\/p>\n<p>This adjustment suggests a growing belief among analysts that inflationary pressures in the UK may be more persistent than originally modeled. The shift comes as global markets grapple with the &quot;higher for longer&quot; narrative, even as some central banks begin to consider the end of their tightening cycles.<\/p>\n<h2>Mixed Inflation Expectations and Trade Data<\/h2>\n<p>The latest ECB survey data revealed a slight uptick in long-term inflation concerns among consumers. <strong>Three-year CPI expectations<\/strong> rose to <strong>2.9%<\/strong> in August, exceeding the estimated 2.8%. However, <strong>one-year expectations<\/strong> landed at <strong>3.0%<\/strong>, slightly below the 3.1% consensus but still higher than the previous 2.9% reading.<\/p>\n<p>On the trade front, the <strong>Eurozone&#39;s seasonally adjusted current account surplus<\/strong> fell to <strong>\u20ac27.6 billion<\/strong> in July. While the overall figure declined from June&#39;s \u20ac35.1 billion, <strong>Italy<\/strong> reported a robust current account balance of <strong>\u20ac7.384 billion<\/strong>, significantly outperforming the forecast of \u20ac5.839 billion.<\/p>\n<h2>Geopolitical and Currency Market Volatility<\/h2>\n<p>In the currency markets, the <strong>Japanese Yen fell by 1%<\/strong> against the US Dollar following comments from Bank of Japan Governor <strong>Ueda<\/strong>, highlighting the continued divergence in global monetary paths. Meanwhile, European Commission Vice-President <strong>Valdis Dombrovskis<\/strong> addressed fiscal concerns, stating that while an <strong>EU-wide windfall tax<\/strong> is not currently being proposed, he remains prepared to discuss the matter as the economy shows signs of strength.<\/p>\n<p>On the geopolitical stage, reports suggest that Turkish President <strong>Erdogan<\/strong> and <strong>Donald Trump<\/strong> may meet in New York to discuss potential initiatives for <strong>negotiations regarding the conflict in Ukraine<\/strong>. Such a meeting could introduce new volatility or relief into energy and commodity markets depending on the perceived progress of diplomatic efforts.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Key Takeaways ECB President Christine Lagarde confirmed there are no signs of second-round inflation effects yet, maintaining a &quot;meeting-by-meeting&quot; approach 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