Faced with a difficult mix of weak economic activity and high inflation, the European Central Bank has kept interest rates on hold at 4.25% as expected.
At the same time the banks economists cut their prediction for euro zone growth this year and next.
The ECB also raised its consumer price inflation forecast for the region for both 2008 and 2009.
In his remarks after the announcement, ECB President Jean-Claude Trichet’s assessment was not particularly upbeat: “The euro area economy is currently experiencing an episode of weak activity characterised by high commodity prices, weighing on consumer confidence and demand, as well as by dampened investment growth. We expect this episode to be followed by a gradual recovery.”
In London also it was no change for the British central bank which for the fifth month running kept the cost of borrowing at 5%.
Illustrating the size of the problem, house prices in August were 12.7% lower than a year earlier, according to Britain’s biggest mortgage lender HBOS.
Also responding to inflation, Sweden’s central bank raised its key interest rate by a quarter of a percentage point to 4.75% but said the rate was expected to remain steady for the rest of the year as the economy there slows.