ECB may lower rates as inflation dips

EURO-region inflation slowed for the first time in five months in December, giving the European Central Bank room to lower borrowing costs further as the economy edges toward a recession.

The inflation rate in the 17 nation euro area fell to 2.8% from 3% in November, the European Union’s statistics office in Luxembourg said in an initial estimate. Euro-area services and manufacturing output contracted less than estimated last month and French consumer spending unexpectedly declined in November from October, reports showed.

Europe’s economy is showing increasing signs of a slowdown as governments struggle to contain the region’s debt crisis, adding pressure on the ECB to lower the benchmark interest rate from the current 1%, which matches a record low. Economists at IHS Global Insight and ABN Amro forecast the ECB will cut borrowing costs as low as 0.5% to fight a recession.