Business confidence in Europe’s largest economy has recorded its second straight drop as managers turned more pessimistic about the coming six months.

The decrease was the third this year with September’s decline, and all three came in the final four months of 2025, an indication of persistent weakness in business morale in the world’s fourth-largest economy.

Germany’s Ifo economics institute said Wednesday that its latest survey of domestic companies produced a fall in the headline business climate index to 87.6 points – the worst result since May – from a downwardly revised 88.0 and the market expectation of 88.1.

This month’s expectations component for the coming six months eased to 89.7 points to match September’s result, which was the lowest since March. The reading undershot November’s downwardly revised mark of 90.5, which was also the estimate.

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UK inflation fell below estimates for a third consecutive month, raising hopes of a Christmas rate cut from the Bank of England.

The Office for National Statistics said headline consumer price inflation (CPI) slowed to 3.2% y/y in November, undershooting the 3.5% consensus forecast and falling sharply from October’s 3.6% reading. Core CPI also eased to 3.2%, two tenths softer than both expectations and the prior month.

Statisticians reported a marked slowdown in goods price inflation, with the annual rate slipping to 2.1% from 2.6%, while CPI services inflation eased modestly to 4.4% from 4.5% in October.

Grant Fitzner, the ONS’s chief economist, said lower food prices — which typically rise at this time of year — were the main drag on inflation, with notable declines in cakes, biscuits and breakfast cereals.

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Euro area central bankers are widely expected to hold interest rates at current levels on Thursday as they become more cosy in their “good place.”

In fact, after three consecutive decisions to leave key interest rates unchanged, the European Central Bank looks ready to maintain that policy for quite a while, according to Deutsche Bank. “We do not expect any further interest rate cuts in the foreseeable future. Financial markets are also pricing in only a marginal easing of around three basis points over the next 11 months. This corresponds to an implied 12% probability of a further rate cut.”

Notably, talk of higher rates continues to make the rounds, Deutsche explained. “Partly due to the looming inflationary pressure stemming from Germany's expansionary fiscal policy and structural labour market bottlenecks, we now project a first rate hike of 25 bps in mid-2027.”

Isabel Schnabel, an ECB executive board member, told Bloomberg News she was “comfortable” with market expectations that the next move will be a hike, adding that such a change is unlikely anytime soon.

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The BoJ’s Policy Board is widely expected to raise its target rate by 25 basis points to 0.75% on Friday.

Comments from Governor Kazuo Ueda reinforced market conviction. Speaking to business leaders in Nagoya on 1 December, Ueda said the contraction seen in Q3 was temporary and that the economy would “return to positive growth” thereafter.

On inflation, he noted that sizeable positive contributions from rice and other food items largely reflected temporary cost-push factors.

Turning to monetary policy, Ueda said the Bank recognised that real interest rates remained at “significantly low levels”, well below the level neutral to economic activity and prices. “In other words, even if the policy interest rate is raised, accommodative financial conditions will be maintained,” he said.

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Lingering doubts over the case for a Bank of England rate cut have faded in recent days, after UK data showed slowing growth, a loosening labour market and cooling price pressures.

The latest analysts’ poll expects the Monetary Policy Committee (MPC) to vote by a narrow 5–4 margin in favour of cutting Bank Rate by 25 basis points to 3.75% at the conclusion of its two-day meeting on Thursday.

Deutsche Bank’s Sanjay Raja expects Governor Andrew Bailey to cast the deciding vote. The committee voted by the same margin in November to keep rates unchanged. (LiveSquawk - Continue Reading)