Europe Economic Weekly: Unconstructive ambiguity

The market is pricing a "forceful" policy response but the ECB still stresses a "measured response", pointing to 75-100bp of hikes in total and against an October hike. In our updated Euro area scenario, higher winter energy prices and tighter financing conditions lift headline inflation to 3.0% in 2026 (+10bp) and 2.5% in 2027 (+30bp); we pencil in an ECB hike in Dec-26 and cuts from Sep-27. For the UK, we raise inflation to 3.2%/3.2%/2.0% in '26/'27/'28 with a peak of 4.2% in Feb-27, and growth of 1.3%/1.0%/1.4%; we expect the BoE to hike to 4.25% in Nov-26 and Feb-27, followed by three cuts to 3.5% from 2028. The SNB stayed on hold, the Riksbank guided to two hikes and Norges hiked 25bp. Next week watch Euro area September headline inflation at 3.9% with core at 2.4%.