We have had a raft of euro area data that puts us more firmly in the 25bp rate hike camp for Thursday’s meeting. Euro Area GDP last week coming in broadly in line with Consensus at a tepid 0.1%. Today we got the results of the Q1 Bank Lending Survey, which show signs of a double whammy hit from tighter monetary policy on credit demand as well as spillover from US banking sector fragilities on credit supply. Some of the numbers in the survey are eye catching. For example, net demand for loans from firms fell more strongly than expected and at any time since the global financial crisis. Finally, today offered no surprises on inflation. As expected, the flash April data showed inflation moving broadly sideways. Core inflation was broadly unchanged, though that is an improvement on its previous upward march. Most notably perhaps is that food inflation has started to come off, a sign that the indirect effect of higher energy prices is now starting to fall back. Core inflation may soon follow. All of that gives more conviction to our 25bp hike call for Thursday’s ECB meeting. The market had been pushing closer to 50bps and a terminal rate of 3.75% following some ECB Governing Council members calling for another 50bp hike. But these data to us suggest the ECB is more likely step down from 50bp to 25bps hikes, not least to reflect a more cautious approach to continued US banking sector fragilities. To satisfy the more hawkish members of the ECB Governing Council, we expect an announcement that balance sheet run off is accelerated in the second half of this year. Flexible PEPP reinvestment is expected to remain in place, with TPI as a backstop, to help put a ceiling on Italian spreads.