BoE, ECB keep rates on hold
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BoE rate increases have done little to cool consumer spending.
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LONDON, England -- The Bank of England has left its key interest rate unchanged at 4.0 percent as the economy expands at a steady pace and inflation remains under control.
The BoE decision Thursday was followed by a similar vote by European Central Bank policymakers, who kept the main euro zone rate on hold at 2.0 percent despite calls from politicians and industry leaders for lower borrowing costs to offset the impact of a strong euro.
Both decisions were widely expected.
The BoE's decision to keep rates unchanged comes one month after it raised lending costs by a quarter point -- the second such increase since November.
Although there have been growing concerns that the UK economy could start to expand too quickly -- lifting the rate of inflation along with it -- overall prices have been rising at 1.4 percent, well below the BoE's target of 2.0 percent.
Analysts believe this gives policymakers breathing room to leave rates steady -- at least for now -- given the fact that two quarter-point rate hikes, in November and February, have done little to rein in consumers.
But rates may rise by another quarter-point next month or in May if inflationary pressures mount.
"The only question is when, not if, interest rates will rise. Consumers and business should be aware that further interest rate rises are just around the corner,'' Graeme Leach, chief economist at the Institute of Directors, told Reuters.
The ECB, which is responsible for monetary policy within the 12-nation euro zone, decided to leave its key rate unchanged at 2.0 percent.
Euro zone gross domestic product grew by 0.3 percent in the fourth quarter of last year, below the consensus expectation and providing a weaker launch into 2004 than many had hoped.
Annual euro zone inflation slid to 1.6 percent in February from 1.9 percent in January. With a further slowdown expected in March, the ECB is almost certain to achieve stable prices in 2004, analysts say.
The ECB has been under huge pressure from euro zone politicians -- including German Chancellor Gerhard Schroeder and French Prime Minister Jean-Pierre Raffarin -- to lower lending rates to offset the euro's strength.
Their appeals had been echoed by industry groups who are concerned that the strong currency will hamper their ability to compete with goods produced outside the zone.
In the United States -- where the economy remains fairly robust -- the Federal Reserve's main lending rate currently stands at 1.0 percent, while the Bank of Japan has pushed borrowing costs to zero percent in an attempt to spark a long-awaited recovery.
