ECB survey finds sharp rise in borrowing costs as wage pressures ease

The European Central Bank's latest enterprise survey revealed a sharp acceleration in borrowing costs across the euro area in the second quarter of 2026, even as firms' expectations for wages and selling prices moderated — a mixed picture that lands just days before policymakers meet to decide on interest rates.

Borrowing Costs Surge

The 39th round of the ECB's Survey on the Access to Finance of Enterprises (SAFE), published on Monday and covering the period from late May to late June 2026, found that a net 42% of euro area firms reported higher interest rates on bank loans, up from 26% in the first quarter. Both small and medium-sized enterprises and large firms experienced similar increases. Other financing costs, including fees and commissions, also continued to rise, though at a somewhat slower pace than in the previous round.investinglive+1

The acceleration in reported borrowing costs reflects the ECB's June rate hike, which raised the deposit facility rate by 25 basis points to 2.25% — its first increase since the post-pandemic tightening cycle ended. Loan demand picked up modestly during the quarter, while overall credit availability was little changed, pushing the ECB's bank loan financing gap slightly higher to 3% from 2%.ecb.europa+1

Price and Wage Expectations Ease

Despite the tighter financial conditions, the survey offered some encouragement for policymakers. Euro area firms now expect their selling prices to rise by 3.2% over the next 12 months, down from 3.5% in the previous survey. Wage growth expectations moderated to 2.5% from 2.8%, while expected non-labour input cost growth slowed to 5.2% from 5.8%.investinglive

Inflation expectations remained broadly anchored, with median one-year and three-year expectations holding at 3.0%, though five-year expectations edged up to 3.1%. Most firms continued to see upside risks to the longer-term inflation outlook.investinglive

Ahead of Thursday's Rate Decision

The data arrives ahead of the ECB's Governing Council meeting on Thursday, July 23, where markets overwhelmingly expect rates to remain on hold. Swap markets imply a 93% probability of no change, with analysts broadly expecting the next move to come in September.global.morningstar+1

The easing in wage and price expectations may reassure officials that the energy-driven inflation surge — euro area headline inflation reached 3.2% in May — has not yet triggered the kind of second-round effects that would compel immediate further tightening. ECB Governing Council member Pierre Wunsch said last month he would support another hike only if inflation continued spreading beyond energy into services and wages.reuters+1