Deflation threat will force cut in rates

THE European Central Bank (ECB) will be forced to cut interest rates again in order to tackle the new threat to the euro economy, deflation, according to Friends First chief economist Jim Power.

The Stability & Growth Pact, he said, will have to become more flexible to cope with difficult economic circumstances. “But most of all, structural reforms will be essential in many of the core euro area economies to avoid a long period of economic stagnation,” he said.

Interest rates were cut earlier this month from 2.5% to 2% and could fall to 1.75% or 1.5% before the end of the year, according to many economists.