Hopes rise for deep ECB rate cut

Unemployment has risen in Spain, where Nissan is cutting 1,600 jobs

A steep fall in eurozone inflation and a rise in the jobless rate has raised hopes that the European Central Bank (ECB) will cut rates sharply next week.

Analysts said the ECB could now cut rates by up to one percentage point from their current level of 3.25%.

Figures from Eurostat showed inflation in the eurozone fell to 2.1% in November, from 3.2% the month before.

Other figures showed the eurozone's unemployment rate rose to 7.7% in October from 7.6% in September.

The lowest unemployment rate was 2.5% in the Netherlands. The highest rate was 12.8% in Spain.

Howard Archer, at IHS Global Insight, said that falling prices and rising unemployment meant there was a "compelling case" for a one percentage point cut in rates when the ECB meets next week.

Further falls

The fall in inflation was largely due to a drop in the prices of food and energy.

Falls in the price of food and energy reduced eurozone inflation

Analysts said inflation was set to fall further, leaving the ECB ample room for more rate cuts.

"We expect a cut by 75 or 100 basis points in December and further rate cuts next year," said Juergen Michels, economist at Citigroup.

"Our forecast is that the ECB rate will go down to 1% or even lower by mid-2009."

The unemployment rate for all 27 nations of the EU was 7.1% for November, compared with 7.0% in September and 6.9% a year earlier.

Spain saw the biggest jump in the unemployment rate, rising to 12.8% from 12.1% in September. In July, the jobless rate had stood at 11.3%.

The jobless rate in Austria actually fell, from 3.1% in September to 3% in October.

Fiscal help

European governments are also working on fiscal packages and other programmes to boost the economy.

French President Nicolas Sarkozy is to unveil a 19bn euros (£15.7bn; $24.2bn) next week, which will include help for the car industry and the construction industry.

The Italian government has adopted a stimulus package to help families and companies, including tax cuts worth 2.4bn euros for poorer families and pensioners.

The EU has called for a 200bn euro boost across Europe to help stimulate an economic recovery.