No one doubts that the European Central Bank takes the threat of inflation seriously. Jean-Claude Trichet, president of the central bank indicated strongly that rates would rise to curb rising prices, and he followed through on his word last month, raising rates by a quarter point to 4.25 per cent. But today's figures showing that the Eurozone has posted its first fall in output this morning since the single currency came into use in 1999 may soften its stance a little. Overall GDP in the 15 nations that make up the Eurozone fell by 0.2 per cent in the three months to June. Another fall in the third quarter of the year will push the region into technical recession.

Despite upturns in small eurozone economies including Greece, Austria and Portugal, overall output was dragged down by falls in Germany, France and Italy, its three biggest economies which together account for nearly 60 per cent of output. The headache for the European Central Bank was intensified by record inflation in July.

Economists are now forecasting that the slowing economy will put further rate rises off the menu, and may even pave the way for some rate cuts. While this is great news for homeowners, especially in Spain where there has been a damaging slump in house prices, it doesn't bode well for the Euro, which has levelled off at a six-month low against the dollar this morning. It could decline further as investors seek the safety of other currencies in regions where rate cuts are not on the cards.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive