The European Central Bank on Thursday cut interest rates by a quarter-point, responding to signs of deteriorating activity and weakening inflation despite bond-market turmoil over plans for a splurge of spending.

The European Central Bank cut its economic growth expectations for the euro zone once more on Thursday and raised its projection for inflation this year, even as it predicted price growth back at target in 2026.

The European Central Bank doesn’t have a role in helping governments finance more defense spending and will stick to its mission of price stability, President Christine Lagarde said.

The European Central Bank is set to cut interest rates again on Thursday. After cutting borrowing costs rapidly over the past nine months as inflation retreated and economic growth faltered, the euro zone's central bank has telegraphed another 25 basis point reduction in the deposit rate.

The ECB has cut rates five times since June as inflation retreated and economic growth faltered. But with rates slowly approaching a level that no longer restricts economic growth, one might expect an end to the easing cycle.

In particular, the decision to lower the deposit facility rate – the rate through which the Governing Council steers the monetary policy stance – is based on its updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission.

Christine Lagarde said the central bank is switching “to a more evolutionary approach” as it will take longer for inflation to cool towards its 2pc target.

"Markets have repriced the ECB expectations in recent days, not least following the change to the German fiscal position and spending package. Currently there are almost two additional cuts from the ECB until year-end priced, which is about one cut less than earlier this week ."

The European Central Bank cut interest rates as expected on Thursday and kept the door ajar to more, even as a looming trade war with the U.S. and plans to boost military spending drive Europe's biggest economic policy upheaval in decades.