- Markets fully price a second 25bp hike of 2026

- Staff forecasts likely to show firmer growth, mixed inflation picture

- Lagarde faces delicate task over signalling further tightening

- Announcement due at 14:15 CEST/ 12:15 GMT

- Press conference scheduled for 14:45 CEST/ 12:45 GMT

By Harry Daniels
LiveSquawk News
@HarryDaniels71

15:00 GMT | 8 September 2026

On Thursday, the European Central Bank is widely expected to raise its key interest rates by 25 basis points for a second time this year, taking the deposit rate to 2.50%, as concerns over persistent inflation continue to mount.

The ECB's Governing Council is unlikely to disappoint current market expectations, having increasingly signalled the prospect of further tightening over the past six weeks.

At its 23 July meeting, the key deposit rate was left unchanged, with policymakers saying they were closely monitoring the "intensity and duration of the [energy] shock" stemming from the ongoing US-Iran conflict in the Middle East, particularly around the Strait of Hormuz.

At the time, Brent crude was trading in the mid-to-high USD 90s per barrel, while euro area headline inflation had eased to 2.8% y/y in June from 3.2% in May. At the start of the new week, Brent is nearing USD 100 per barrel. Core inflation, which excludes energy, food, alcohol and tobacco, stood at around 2.4%.

The combination presented policymakers with an increasingly difficult trade-off between containing inflation and avoiding unnecessary damage to growth.

That growth picture subsequently improved. On 30 July, Eurostat reported preliminary GDP growth of 0.4% q/q in the three months to June, double the consensus forecast and rebounding from an upwardly revised flat reading in Q1, previously reported as a 0.2% contraction.

The market's reaction to July's decision was therefore broadly to treat it as a hawkish pause rather than a dovish shift.

Economists at Barclays argued that the lack of improvement in the inflation outlook justified tighter policy.

"We expect the ECB to raise rates in September and to retain optionality on later decisions," the bank said.

Updated ECB staff projections are expected to show stronger near-term growth alongside a more complicated inflation profile.

Barclays expects some upward revisions to the near-term growth outlook, reflecting the euro area's stronger-than-expected performance in recent months.

At the same time, softer inflation outturns in late spring and early summer are likely to lead to a modest downward revision of the ECB's 2026 headline inflation forecast.

However, the persistence of elevated energy prices is expected to push the 2027 inflation profile higher.

The bank said changes to core inflation projections should be relatively limited and, on balance, slightly to the downside.

Messaging will be crucial, with ECB President Christine Lagarde needing to strike a balance between validating the September hike and avoiding any firm commitment to further tightening.

"We feel the ECB needs to signal to markets what its greatest concern is at the moment: inflation or overtightening risk. On both fronts, the news has been more encouraging than expected," said Carsten Brzeski, global head of macro research at ING Bank.

"With fiscal concerns mounting and bond yields rising, we are not convinced the bank is ready to add fuel to the fire by embracing a more worrying inflation narrative."

Comments from ECB officials ahead of the bank's self-imposed media blackout have continued to emphasise that future decisions will remain data dependent.

Executive Board member Isabel Schnabel, one of the Governing Council's more hawkish voices, was particularly explicit.

"At the current policy rate, inflation is unlikely to return to target over the medium term, and therefore further tightening will be necessary," she said.

In the same 26 August interview, Schnabel also warned that the ECB risked being "behind the curve".

While Thursday's hike appears increasingly well telegraphed, the case for further tightening is less clear.

ING noted that any additional hikes beyond September would move policy away from what could still be regarded as an "insurance" move and more decisively into restrictive territory.

"That shift still lacks sufficient support from the data," the bank said.

That leaves this week's meeting less about whether the ECB will hike and more about how strongly Lagarde signals that September could be the start of a broader tightening cycle rather than a standalone adjustment.