FRANKFURT, Germany (AP) — The European Central Bank left interest rates unchanged Thursday for the fourth meeting in a row as the economy in the 20 countries that use the euro increasingly looks strong enough to get by without the stimulus of lower borrowing costs for businesses and consumers.
Bank President Christine Lagarde said that while the economy had remained “resilient,” there was too much uncertainty over trade and international conflicts to give any hints about future moves.
“We reconfirmed that we are in a good place” with interest rates, she said. “Which does not mean that we are static.”
Instead, the bank's rate setting council would take things meeting by meeting, starting with the next gathering in February. There is “no set date for any move,” she said. “There are lots of factors that that are in play and that will evolve over the course of '26.”
The council left the benchmark deposit rate unchanged at 2%, where it has been since a rate cut in June. Economists now think the rate could stay there for months - and possibly into 2027.
That’s because the ECB remains poised between inflation that’s just a bit too persistent and growth that’s underwhelming but steady after a trade deal with the US removed some of the uncertainty that had held back business planning. Higher rates fight inflation while cuts support growth.
The bank said in its decision statement that economic growth “is expected to be stronger” than in the bank's last projections in September, while inflation in services businesses was declining more slowly, even as overall inflation was expected to stabilize at the bank's 2% target.
Surveys of purchasing managers by S&P Global slipped slightly for December but still showed business activity expanding as the year comes to an end, reinforcing expectations that the 20 countries using the euro currency will continue to see growth of around 0.3% per quarter over the previous quarter.
That outcome is better than feared during turbulent trade negotiations with the United States over the summer, which finally settled with a 15% tariff, or import tax, imposed on European goods by U.S. President Donald Trump. Trump had threatened higher rates and the deal struck with the European Union's executive commission appears to have removed uncertainty and made it easier for businesses to make decisions. So the economy can get by without the added boost from a cut, analysts say.
“The haze of economic uncertainty has somewhat lifted, especially regarding trade,” economist Lorenzo Codogno said.
On top of that, inflationary pressures remain too high for the ECB to contemplate a cut. The headline rate of 2.1% for annual inflation in November is roughly in line with the bank's goal of 2%, thanks in part to a drop in volatile energy prices. But inflation was higher at 3.5% in the services sector, which encompasses much of the economy from hairdressers and hotels to concert tickets and medical services.
While the ECB stood pat, the Bank of England on Thursday cut its key interest rate for the first time in four months as stubbornly high inflation starts to ease. Policymakers voted 5-4 to reduce the base rate by a quarter of a percentage point to 3.75% on Thursday. Consumer price inflation slowed to 3.2% in the 12 months through November, from 3.6% a month earlier.
Central bank rate cuts can support growth because they strongly influence borrowing rates throughout the economy, lowering credit costs and promoting credit sensitive purchases such as new homes by consumers or new production facilities by businesses. Higher rates have the opposite effect and are used to contain inflation by dampening demand for goods.
FILE - The European Central Bank is seen near the river Main in Frankfurt, Germany, early Tuesday, Dec. 9, 2025. (AP Photo/Michael Probst, File)
LONDON (AP) — U.S. President Donald Trump and his Defense Secretary Pete Hegseth have been damning of the U.K.'s naval capabilities. Their jibes may have stung in a country with a long and proud maritime history, but they do carry some substance.
The U.K. has been at the forefront of Trump’s ire since the onset of the Iran war on Feb. 28, when British Prime Minister Keir Starmer refused to grant the U.S. military access to British bases.
Though that decision has been partly reversed with the decision to permit the U.S. to use the bases, including that of Diego Garcia in the Indian Ocean, for so-called defensive purposes, Trump is adamant he was let down. He has repeatedly lashed out at Starmer and branded the Royal Navy’s two aircraft carriers as “toys.”
“You don’t even have a navy,” he told Britain's Daily Telegraph in comments published Wednesday. "You’re too old and had aircraft carriers that didn’t work.”
Hegseth, meanwhile, said sarcastically that the “big, bad Royal Navy” should get involved in making the Strait of Hormuz safe for commercial shipping.
For numerous reasons, the Royal Navy is not as big and bad as it used it to be when Britannia ruled the waves. But it's not as feeble as Trump and Hegseth imply and is largely similar with the French navy, which it is often compared with.
“On the negative side, there is a grain of truth, with the Royal Navy being smaller than it has been in hundreds of years,” said professor Kevin Rowlands, editor of the Royal United Services Institute Journal. “On the positive side, the Royal Navy would say that it’s entering its first period of growth since World War II, with more ships set to be built than in decades.”
It’s not that long ago that Britain could muster a task force of 127 ships, including two aircraft carriers, to sail to the south Atlantic after Argentina’s invasion of the Falkland Islands. That 1982 campaign, which then-U.S. President Ronald Reagan was lukewarm about, marked the final hurrah of Britain’s naval pedigree.
Nothing on that scale, or even remotely, could be accomplished now. Since World War II, Britain’s combat-ready fleet has declined substantially, much of it linked to changing military and technological advances and the end of empire. But not all.
The number of vessels in the Royal Navy fleet, including aircraft carriers, destroyers frigates and submarines has fallen from 166 in 1975 to 66 in 2025, according to The Associated Press' analysis of figures from the Ministry of Defense and the House of Commons Library.
Though the Royal Navy has two aircraft carriers at its command, there was a seven-year period in the 2010s when it had none. And the number of destroyers has halved to six while the frigate fleet has been slashed from 60 to just 11.
The Royal Navy faced criticism for the time it took to send the HMS Dragon destroyer to the Middle East after the war with Iran broke out. Though naval officials worked night and day to get it shipshape for a different mission than the one it was readying for, to many it symbolized the extent to which Britain’s military has been gutted since the fall of the Berlin Wall in 1989.
For much of the Cold War, Britain was spending between 4% and 8% of its annual national income on its military. After the Cold War, that proportion steadily dropped to a low of 1.9% of GDP in 2018, fuel to Trump's fire.
Like other countries, Britain, largely under the Labour governments of Tony Blair and Gordon Brown, sought to use the so-called “peace dividend” following the collapse of the Soviet Union to divert money earmarked for defense to other priorities, such as health and education.
And the austerity measures imposed by the Conservative-led government in the wake of the global financial crisis of 2008-9 prevented any pickup in defense spending despite the clear signs of a resurgent Russia, especially after its annexation of Crimea and parts of eastern Ukraine.
In the wake of Russia's full-blown invasion of Ukraine in 2022, and with another Middle East war underway, there's a growing understanding across the political divide that the cuts have gone too far.
Following the Ukraine invasion, the Conservatives started to turn the military spending tide around. Since the Labour Party returned to power in 2024, Starmer is seeking to ramp up British defense spending, partly at the cost of cutting the country's long-vaunted aid spending.
Starmer has promised to raise U.K. defense spending to 2.5% of gross domestic product by 2027, and the updated goal is now for it to rise to 3.5% of GDP by 2035, as part of a NATO agreement pushed by Trump. That, in plain terms, will mean tens of billions pounds more being spent — a lot more kit for the armed forces.
The pressure is on for the government to speed that schedule up. But with the public finances further imperilled by the economic consequences of the Iran war, it's not clear where any additional money will come.
The jibes will likely keep coming even though the critiques are unfair and far from the truth, said RUSI's Rowlands, who was a captain in the Royal Navy.
“We are dealing with an administration that doesn’t do nuance," he said.
This story has been corrected to show there were 166 vessels in 1975, not 466.
An artillery piece from the 1982 Falklands War between Argentina and Britain lies on Mount Longdon on the Falkland Islands, also known as Islas Malvinas, Monday, March 16, 2026. (AP Photo/Ricardo Mazalan)
FILE - The Royal Navy aircraft carrier HMS Prince of Wales is pictured before its port call in Tokyo, Thursday, Aug. 28, 2025. (AP Photo/Eugene Hoshiko, File)
FILE - Britain's Prime Minister Keir Starmer speaks to Royal Marines onboard the HMS ST Albans in Oslo, during his visit to Norway on Friday, May 9, 2025.(AP Photo/Alastair Grant, Pool, File)
FILE - Indonesian soldiers stand guard as Royal Navy offshore patrol vessel HMS Spey is docked at Tanjung Priok Port during a port visit in Jakarta, Indonesia, Wednesday, Jan. 15, 2025. (AP Photo/Tatan Syuflana, File)
FILE - Crews walk near the Royal Navy aircraft carrier HMS Prince of Wales before its port call in Tokyo Thursday, Aug. 28, 2025. (AP Photo/Eugene Hoshiko, File)
