ECB President Christine Lagarde indicated this could be the beginning of a series of rate reductions, but cautioned future decisions would depend on inflation data. Despite this move, several ECB council members expressed doubts about another cut in July due to recent inflation and wage increases.

The ECB itself affirmed it was “not pre-committing to a particular rate path” and expects inflation to remain above its 2% target until late 2025.

Analysts speculate that the ECB’s rate cut raises the likelihood that the Bank of England will follow suit.

Dan Coatsworth, investment analyst at AJ Bell, said: “The ECB has slashed the cost of borrowing for the first time in nearly five years, firing the starting gun on looser monetary policy and putting pressure on the Bank of England and Federal Reserve to do the same in the UK and US respectively.”

He added: “Markets were already anticipating a rate cut from the ECB, hence why we haven’t seen the mother of all equity rallies. However, it’s a step in the right direction and has helped to keep investor sentiment positive.

“Investors are constantly thinking about the next step and now we’ve had the ECB’s first cut, the narrative shifts to when the next one might happen and how deep it could be. That is going to remain a guessing game as the ECB has kept schtum on any plans to follow a particular rate path, saying future decisions will be data dependent.

“All eyes have shifted to the US where new data theoretically increases the chances of the Fed cutting rates. Weekly jobless claims are up more than expected, implying the labour market isn’t as tight as previously thought, thus giving the Fed less of a reason to sit on its hands.

“While it may not be enough to convince the Fed to cut at next week’s interest rate meeting, a few more data points like this one would strengthen the argument that we’re slowly edging towards the point where the central bank will pivot.”