Euro banks hold rates

8 September 2008

Both the European Central Bank (ECB) and the Bank of England have held rates for another month.

Borrowing costs from the ECB remain at 4.25 per cent, while the UK is to retain its current bank rate of five per cent.

The two banks announced their decisions yesterday.

Commenting on the move, ECB president Jean-Claude Trichet pointed out that the bank's rate was set only with inflation in mind - which means that a rate cut was ruled out even despite the slowing Euro-zone economy.

“We have only one needle in our compass and that is price stability,” he said.

"Inflationary risks are on the upside."

The UK, predicted by the IMF to slip into recession later this year but also facing inflation levels at a 16-year high, faces similar pressures.

Reacting to the rate hold, chief economist at mortgage lender Abbey, Barry Naisbitt, said: "If the slowing in economic activity is occurring more sharply than anticipated, supporting the view of lower inflation in the medium term, a rate cut could be on the cards later this year, although much will depend on how inflation develops in the coming months."

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