What happened
The European Central Bank raised its three key interest rates by a quarter of a percentage point in June, its first increase since 2023. The deposit facility rate, which sets the floor for borrowing costs across the eurozone, rose to 2.25 percent.
Why it matters
Conflict in the Middle East has pushed energy prices higher, and the ECB is worried those costs will feed through into broader inflation. Raising rates is the main tool a central bank uses to cool rising prices, even though it also makes loans and mortgages more expensive.
Explained simply
Think of the economy like a kettle. When prices bubble up too fast, the central bank turns down the heat by raising rates. That makes money more expensive to borrow, so people and businesses spend a little less, and the bubbling slows. The ECB has decided the kettle is getting too hot again.
What it means for you
If you hold euro savings or a eurozone tracker in your pension or ISA, higher rates can support returns on cash and bonds but weigh on shares that rely on cheap borrowing. UK savers are not directly affected, but a firmer euro can make European holidays and imports pricier.
