MercoPress. South Atlantic News Agency

Euro Zone and UK rates unchanged

The European Central Bank (ECB) and the Bank of England this Thursday left their key interest rates unchanged at 2% and 4.75%, respectively, deterred by weak economic growth and a strong euro.

The decision by the ECB's 18-member governing council in Frankfurt was widely expected by economists. ECB President, Jean-Claude Trichet said, "While short-term inflationary pressures persist, they have recently diminished somewhat, mainly due to the decline in oil prices from the peaks seen in October".

Mr Trichet told a news conference that the "downside risk to the economic outlook coming from oil price... has diminished somewhat over recent weeks". Mr Trichet also reiterated the ECB's view that sharp gains "by the euro are unwelcome and undesirable for economic growth

The ECB's key refinancing rate, which sets the cost of central bank credit to commercial banks, has not been changed since June 2003. Despite signs of an upturn in the region's growth, labour markets and consumer demand have remained sluggish, forcing several companies to cut costs and reduce their workforce. It is widely believed that the interest rates would not be raised in the near future in view of the current strength in the euro and the fact that inflation in the region remains in-line with the ECB's target of 2%.

Interest rates in Britain went up five times from November 2003 with the purpose of cooling the housing market and consumer debt - but have remained unchanged since August. Recent data has indicated a slowdown in manufacturing and consumer spending, as well as in mortgage approvals.

Rising interest rates and the accompanying slowdown in the housing market have knocked consumers' optimism, causing a sharp fall in demand for expensive goods, according to a report earlier this week from the British Retail Consortium. The BRC said Britain's retailers had endured their worst Christmas in a decade.