German inflation plunge paves way for ECB rate cut

Inflation in the eurozone’s dominant economy sank to 0.6%

An unexpected slump in German inflation has set the scene for a host of radical monetary stimulus measures by the European Central Bank this week.

Inflation in the eurozone’s dominant economy sank to 0.6 per cent in May, down from 1.1 per cent in April, Germany’s Federal Statistics Office reported yesterday.

The figure was well below economists’ expectations of 1 per cent and represents the lowest rate recorded in Germany since February 2010.

“If the ECB needed one more reason to act, they’ve now received it on a silver platter” said Jens Kramer, an economist at Hanover’s Norddeutsche Landesbank. The news helped to send the euro down 0.22 per cent against the dollar to $1.3605.

The inflation figures from the rest of the eurozone states are due to be published today. In April the inflation rate across the bloc came in at 0.7 per cent, well below the ECB’s target of around 2 per cent.

The Frankfurt-based central bank has come under pressure to take action to avert the danger of deflation in the single-currency bloc.

Economists now expect ECB President Mario Draghi to announce a further cut in its main interest rate on Thursday to 0.1 per cent as well as introducing a negative deposit rate for banks. This will effectively charge lenders for keeping reserves at the central bank,  with the goal of boosting credit to the wider economy.

The eurozone is still struggling to grow after emerging from recession last year. Surveys of manufacturing activity by Markit yesterday showed May growth slowed in all countries except the Netherlands.

But UK manufacturing is growing at its healthiest pace in more than two decades, fuelling hopes the long-awaited rebalancing of the economy could finally be materialising.

The latest snapshot of the sector by Markit/CIPS gave a reading of 57 in May, well above the 50 mark that signals growth. The reading was slightly down from the 57.3 recorded in April, but economists at Markit/CIPS stressed firms are enjoying their best spell of growth since the survey began 22 years ago, with output expanding in every months since March 2013.

“Sustaining the rebound and continuing to push towards rebalancing the economy towards manufacturing remains critical,” said Rob Dobson of Markit. David Noble, CIPS chief executive, said: “We’re starting to see real evidence of a sustained recovery for the sector.”

According to the Office for National Statistics, manufacturing output expanded by 1.3 per cent in the first three months and activity was up  3.5 per cent over the same quarter a year earlier. However, the sector’s output still remains 7.7 per cent below its level at the beginning of the recession in 2008. Mr Dobson said even at the present rate of growth it would take until late-2015 to achieve “full recovery”.

In a further tentative sign of UK rebalancing, mortgage activity fell for a third successive month in April. There were 62,915 approvals for house purchases in the month, according to the Bank of England, below the consensus estimate of 64,500 and down from a peak of 75,838 in January. The approvals rate is the lowest since July 2013.

Samuel Tombs of Capital Economics said: “While recent falls may reflect temporary disruption caused by lenders adopting the Mortgage Market Review regulations which were introduced in mid-April, surveys such as the RICS Housing Market Survey have suggested for several months now that demand is fading.”

House prices rose 10.9 per cent year on year in April, according to Nationwide, fuelling fears of a bubble. There have been growing demands for the Bank’s Financial Policy Committee to recommend a watering down of the Government’s Help to Buy mortgage subsidy scheme at its meeting later this month. But the latest signs of  moderation in lending may ease the pressure on regulators to take further action to cool the housing market.

The total value of mortgage lending in April was £15.7bn, of which £10bn was for house purchases and £5.1bn was for remortgaging. Consumer credit rose by £700m in the month, an annual growth rate of 5.3 per cent.

The manufacturing picture was strong across the board in May with output and new orders growing in consumer, intermediate and investment goods. New export orders were up again, with demand increasing from the United States, the Middle East and New Zealand. Employment also rose for the thirteenth successive month.

Start your day with The Independent, sign up for daily news emails
Life and Style
A monstrous idea? Body transplants might no longer be science fiction
Science An Italian neurosurgeon believes so - and it's not quite as implausible as it sounds, says Steve Connor
Sport
Demba Ba (right) celebrates after Besiktas win on penalties
footballThere was no happy return to the Ataturk Stadium, where the Reds famously won Champions League
Arts and Entertainment
Natural beauty: Aidan Turner stars in the new series of Poldark
arts + ents
News
Mia Freedman, editorial director of the Mamamia website, reads out a tweet she was sent.
arts + ents
News
people
Arts and Entertainment
The write stuff: masters of story-telling James Joyce, left, and Thomas Hardy
arts + ents...begging to differ, John Walsh can't even begin to number the ways
Sport
Jose Mourinho on Sky Sports
footballEXCLUSIVE COLUMN Paul Scholes: It was not a leg-breaking tackle, as the Chelsea manager had claimed
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Telesales / Marketing Executive - B2B - OTE £25,000

£17000 - £25000 per annum: Recruitment Genius: An opportunity to join this new...

SThree: Trainee Recruitment Consultant

£18000 - £21000 per annum + OTE £45,000: SThree: SThree Group have been well e...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Recruitment Genius: Business Control Manager

£36000 - £44000 per annum: Recruitment Genius: Encouraging more businesses to ...

Day In a Page

HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?
How we must adjust our lifestyles to nature: Welcome to the 'Anthropocene', the human epoch

Time to play God

Welcome to the 'Anthropocene', the human epoch where we may need to redefine nature itself
MacGyver returns, but with a difference: Handyman hero of classic 1980s TV series to be recast as a woman

MacGyver returns, but with a difference

Handyman hero of classic 1980s TV series to be recast as a woman
Tunnel renaissance: Why cities are hiding roads down in the ground

Tunnel renaissance

Why cities are hiding roads underground
'Backstreet Boys - Show 'Em What You're Made Of': An affectionate look at five middle-aged men

Boys to men

The Backstreet Boys might be middle-aged, married and have dodgy knees, but a heartfelt documentary reveals they’re not going gently into pop’s good night
Crufts 2015: Should foreign dogs be allowed to compete?

Crufts 2015

Should foreign dogs be allowed to compete?
10 best projectors

How to make your home cinema more cinematic: 10 best projectors

Want to recreate the big-screen experience in your sitting room? IndyBest sizes up gadgets to form your film-watching
Manchester City 1 Barcelona 2 player ratings: Luis Suarez? Lionel Messi? Joe Hart? Who was the star man?

Manchester City vs Barcelona player ratings

Luis Suarez? Lionel Messi? Joe Hart? Who was the star man at the Etihad?
Arsenal vs Monaco: Monaco - the making of Gunners' manager Arsene Wenger

Monaco: the making of Wenger

Jack Pitt-Brooke speaks to former players and learns the Frenchman’s man-management has always been one of his best skills
Cricket World Cup 2015: Chris Gayle - the West Indies' enigma lives up to his reputation

Chris Gayle: The West Indies' enigma

Some said the game's eternal rebel was washed up. As ever, he proved he writes the scripts by producing a blistering World Cup innings
In Ukraine a dark world of hybrid warfare and murky loyalties prevails

In Ukraine a dark world of hybrid warfare

This war in the shadows has been going on since the fall of Mr Yanukovych
'Birdman' and 'Bullets Over Broadway': Homage or plagiarism?

Homage or plagiarism?

'Birdman' shares much DNA with Woody Allen's 'Bullets Over Broadway'
Broadchurch ends as damp squib not even David Tennant can revive

A damp squib not even David Tennant can revive

Broadchurch, Series 2 finale, review
A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower: inside the mansion of Germany's 'Bishop of Bling'

Inside the mansion of Germany's 'Bishop of Bling'

A Koi carp breeding pond, wall-mounted iPads and a bathroom with a 'wellness' shower