The European Central Bank (ECB) raises interest rates for the second time this year in a widely flagged move, hoping to tame an inflation rise driven entirely by higher energy costs from the Iran war, Reuters reports.

Surging oil and natural gas prices pushed inflation well past 3pc across the 21-country euro zone last month, far exceeding the ECB’s 2pc target, and a recent escalation of the conflict points to further price pressures that could eventually seep into wage-setting.

“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth,” the ECB has said in a statement.

The ECB has also lifted its 2026 economic growth projection to 0.9pc from 0.8pc seen in June and now sees inflation averaging 3pc this year and 2.5pc in 2027.

Thursday’s hike raises the ECB’s benchmark deposit rate to 2.5pc, the upper end of the “neutral” range considered by policymakers to neither restrict nor stimulate economic growth.