UBS warns markets may be underestimating ECB tightening risks in World Economy News 04/06/2026 UBS expects the European Central Bank (ECB) to raise interest rates by 25 basis points to 2.25% at its June 11 meeting, broadly in line with current market pricing, but warns investors may be underestimating the risk of further tightening later in the year. The rate hike next week is effectively a foregone conclusion, supported by signals from ECB President Christine Lagarde at the April 30 meeting as well as subsequent comments from board members Isabel Schnabel and Philip Lane. UBS ruled out a larger 50 basis point move, saying that “current inflation dynamics seem less dramatic than in 2022/23 and the risk of pro-inflationary second-round effects appears a lot smaller.” “As a result, we think the ECB will not see a reason to push up rates very aggressively,” economists led by Reinhard Cluse wrote. But the more important question, they said, is what comes after June. Press reports based on ECB sources have suggested the bank may need to hike “at least twice” this year. This implicitly opens the door to three hikes, a scenario markets are already partly pricing in, with around 56 basis points of tightening implied by December 2026. “Accordingly, we acknowledge upside risk to our call for just two hikes of 25bps and will be watching carefully for any signs on 11 June that the ECB might deliver its second hike already on 23 July and not wait until 10 September as our baseline would imply,” the economists said. According to a recent Reuters report citing ECB sources, a June hike “is nearly sealed, but July is fully open.” On the ECB’s updated macroeconomic projections, UBS expects the bank to revise its 2026 GDP growth forecast down by 0.2 percentage points to 0.7% and lift its 2026 inflation forecast by 0.3 percentage points to 2.9%, driven primarily by higher energy prices. The inflation revisions would represent a deterioration relative to the March baseline, though not a