Take Two: Central banks diverge on rate decisions; US inflation rises by less than expected

What do you need to know?

The European Central Bank (ECB) kept its benchmark interest rate at 2% last week. The widely anticipated decision followed a downward revision of Eurozone inflation to 2.1% in November from an initial estimate of 2.2%, matching October’s rate. Notably, the ECB increased its economic growth forecast to 1.4% in 2025 – up from September’s 1.2% estimate. It also upped its 2026 prediction from 1% to 1.2%. Elsewhere, the Bank of England cut interest rates by 25 basis points (bp) to 3.75%, as UK annual inflation eased to 3.2% in November, from 3.6% in October. Meanwhile, the Bank of Japan (BoJ) raised its overnight call rate by 25bp to “around 0.75%”, the highest level in 30 years.

Around the world

US inflation rose less than anticipated in November, with the annual rate coming in at 2.7%, official data showed. This was lower than the 3.1% projected by a Bloomberg poll and September’s 3% rise; the US government shutdown prevented October’s data from being collected. Core inflation, which excludes more volatile food and energy prices, rose by 2.6%, less than the 3% expected by the market. The news follows the Federal Reserve’s recent policy meeting where it cut interest rates by 25bp to a three-year low of 3.50%-3.75%. 

Figure in focus: $35trn

Global trade is projected to surpass $35trn in 2025 for the first time, according to the United Nations Conference on Trade and Development’s (UNCTAD) latest Global Trade Update. The figure represents an increase of around 7% on last year. Trade continued to increase in the second half of 2025 “even as geopolitical tensions, higher costs and uneven global demand slowed momentum”, UNCTAD said. However, it expects weaker growth in 2026 due to slower activity, rising debt, higher trade costs and ongoing uncertainty. By region, East Asia and Africa drove trade growth while in terms of sectors, manufacturing, especially electronics, remains the main driver.

Words of wisdom

Hypertropical: The Amazon rainforest may be transitioning towards a hypertropical climate - hotter temperatures and more frequent, intense periods of drought - if carbon emissions do not reduce, according to a new study led by the University of California, Berkeley. A state unseen on Earth for tens of millions of years, a hypertropical climate could cause large numbers of trees to die, weakening one of the planet’s most important carbon sinks. The researchers predict if society continues to emit high levels of greenhouse gases, “hot drought” conditions could become more common across the Amazon by 2100, even during the wet season. 

What’s coming up?

China’s National People’s Congress Standing Committee – the country’s top legislative body - holds its 19^th session from Monday through Saturday. Elsewhere, on Monday, the UK reports its final third quarter GDP growth estimate, while the US issues its second estimate on Tuesday, when the Reserve Bank of Australia also publishes the minutes of its latest monetary policy meeting. Wednesday sees the BoJ issue its own policy meeting minutes. Japan also updates markets with its latest industrial production and unemployment figures on Friday. 

Our 2026 Outlook is now live on the AXA IM Investment Institute – read it here