Bank of England cuts interest rate, ECB holds steady.

February 7, 2008 - Forex Economic News

News out of Europe today focused on the Bank of England and the European Central Bank interest rate decisions. First up, the BOE decided to cut its interest rate from 5.50 percent to 5.25 percent. This followed an interest rate cut by the BOE of 0.25 percent in December. The BOE cited tightening credit conditions for consumers and businesses in the UK in addition to a slowing in consumer spending and an easing of economic growth. "These developments pose downside risks to the outlook for inflation", the BOE statement explained, paving the way to a rate cut to help spur along economic growth. The rate cut of 0.25 percnet was forecasted by the market as less than stellar economic data releases have been coming out of the UK recently with a housing market slowdown and one day after a gloomy business survey released by Nationwide.

The European Central Bank left its interest rate steady at 4.00 percent and in line with the forecasted market expectations. Jean-Claude Trichet, the President of the ECB, cited in his press conference today that inflation concerns are the driving reason behind keeping the interest rate unchanged as he said, "The current short-term upward pressure on inflation must not spill over to the medium term. The firm anchoring of inflation expectations over the medium and long term is of the highest priority to the Governing Council". Trichet also went on to say that with global growth slowing down it presents risks to the growth in the eurozone and that turmoil in the global financial markets has caused an "unusually high uncertainty about its overall impact on the real economy." You can read the full Trichet statement here.

Tags: BOE, ECB, Interest Rates, Jean-Claude Trichet

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