Europe’s top banker warns of eurozone ‘uncertainty’

The European Central Bank will push ahead with plans to roll back its stimulus package at the end of the year, the bank’s chief said today.

ECB president Mario Draghi said he still expects the eurozone economy to keep expanding, but warned that there is increasing uncertainty.

“If firms start to become more uncertain about the growth and inflation outlook, the squeeze on margins could prove more persistent,” Draghi told a conference in Frankfurt.

“This would affect the speed with which underlying inflation picks up and therefore the inflation path that we expect to see in the quarters ahead,” he added. “Uncertainties surrounding the medium-term outlook have increased.”

The bank is expected to raise interest rates towards the end of next year for the first time since 2011, and has said it will wind down its €2.6 trillion stimulus package.

However, Draghi warned that the banks view of interest rates could change if there is an undue rise in eurozone borrowing costs.

“If financial or liquidity conditions should tighten unduly or if the inflation outlook should deteriorate, our reaction function is well defined,” Draghi said.

“This should in turn be reflected in an adjustment in the expected path of future interest rates.”

His statements came as inflation in the eurozone rose at its fastest rate in almost six year in October, pushed up by hikes in the price of energy and services.

The EU confirmed its previous estimates that inflation had risen 2.2 per cent in October, up from 2.1 per cent in September, and an increase from 1.4 per cent year-on-year.

Inflation rose the fastest in Estonia at 4.5 per cent while, at 0.7 per cent, price growth was most sluggish in Denmark.