As expected, the European Central Bank again left its benchmark interest rates unchanged at its monthly meeting. The ECB rate stays at 4% as President Jean-Claude Trichet and his policymakers try to balance concerns about inflation with the prospect of a slowing euro zone economy.
Unlike the US Federal Reserve and the Bank of England in the UK,the European Central Bank has not responded to economic slowdowns by cutting interest rates. In the UK the key rate is now at 5.5% while the US rate is at 4.25% and widely predicted to go lower.
In his comments after the rate announcement, Trichet said inflation will remain “significantly” above 2% in the euro zone in the coming months. He also sounded more hawkish in response to the chance of that pushing up wages: “We were prepared to act pre-emptively so that second round effects and up-side risks to price stability would not materialise, and consequently we decided at today’s meeting to leave the key ECB interest rates unchanged.”
There had been intense speculation over whether the Bank of England would lower the cost of borrowing for a second month running to shore up economic growth in the UK. In the end it decided not to, but is widely tipped to cut rates again in February, when it publishes new growth and inflation forecasts.
UK retailers are worried by signs of a sharp slowdown in consumer spending. The British Retail Consortium had urged the Bank to cut rates again without delay and expressed disappointment that it did not.