Closely watched gauges of long-term inflation expectations in Europe have reached their lowest levels for almost two years, in a sign that investors think central banks can keep lowering interest rates without risking a flare up in price pressures. 

The eurozone’s so-called five-year, five-year forward inflation swap — a measure of markets’ assessment of price growth over the second half of the next decade — dipped below 2.1 per cent this week for the first time since October 2022, falling from over 2.3 per cent last month. 

Meanwhile sterling’s equivalent inflation swap — which tracks retail prices which tend to increase by around 1 percentage point more than consumer prices annually — has fallen to 3.2 per cent, down from 3.5 per cent in April and close to its lowest level since 2016.