ECB Set to Hike Rates Amid Iran Conflict Fears

The European Central Bank is set to raise interest rates for the second time this year as renewed fighting in the Middle East pushes up energy costs and risks further stoking inflation.

Inflation in the 21-nation eurozone hit a three-year high of 3.3 percent in August, substantially above the ECB's two-percent target. The surge in prices has been almost exclusively driven by energy, with little sign of inflation seeping more broadly into other areas of the economy.

Despite rising inflation, some economists believe a rate hike is not the right decision. Felix Schmidt, senior economist at Berenberg bank, said: 'We consider another hike a mistake because there is almost no evidence of knock-on effects.' The ECB will be armed with fresh growth and inflation forecasts for the next few years to guide its decision.

ECB President Christine Lagarde is expected to give little away at her press conference after the rate call, while council member Joachim Nagel said: 'It's an uncomfortable situation - also from a monetary policy perspective. But our meeting-by-meeting approach has served us well in the past and will certainly do so in the future.'