Europe's two leading central banks - the European Central Bank and the Bank of England - on Thursday raised concerns about the outlook for the world economy as the ECB started to prepare the ground for a rate cut in the coming months, according to dpa. But while the ECB's governing council meeting in Frankfurt left its benchmark rate on hold at 4 per cent, the Bank of England's monetary policy committee meeting in London delivered a 25-basis- points cut. Both banks' decisions were in line with forecasts. The Bank-of-England cut brought official rates in Britain down to 5.25 per cent. However, speaking at a press conference following the ECB's 21- head rate-setting council's meeting Thursday, ECB chief Jean-Claude Trichet warned of increasing economic-growth risks as the bank began to pull back from its hardline stance on interest rates. Trichet pointed to "unusual(ly)-high global economic uncertainty" and data confirming a slowing world economy as resulting in growth risks being on the "downside" as a slumping US economy could undercut Europe's expansion rate. "What I say is that incoming data confirms that the risks to economic growth lay on the downside," Trichet said. There were no calls at the ECB meeting for a rate hike or a rate cut, Trichet said. Asked at the press conference whether the bank was shifting its interest-rate position, Trichet insisted that the bank "never pre- committed." The ECB chief insisted, "We are alert and can move at any time." Analysts are expecting the Frankfurt-based bank to begin trimming rates by the middle of the year. While Trichet warned about the risks posed to consumer prices by a big wage push across Europe, he retreated from comments he made at his press conference a month ago warning that the bank was prepared to act head off resurgent inflation. In the meantime, the run-up to Thursday's central bank meetings in Europe was accompanied by ongoing investor concerns about the US mortgage market crisis tipping the nation's economy into recession with another round of sharp falls in global share prices earlier this week. Thursday's Bank-of-England rate cut was the second in three months and indicated that the British monetary authorities intend to lay aside inflation worries so as to try to keep the nation's economy on a growth path. Recent data showed that national consumer price inflation remained at 2.1 per cent for the third month in a row in December. But many analysts expect the Bank of England to press on with its rate-cutting cycle, reducing the cost of money in Britain to 4.5 per cent by the end of the year as part of efforts to bolster the nation's faltering housing sector. Furthermore, figures published Thursday by the Office for National Statistics (ONS) showed that output in manufacturing industries dipped by 0.2 per cent between November and December, adding to the 0.1-per cent decline reported for the previous month. Some analysts made clear Thursday that the rate cut was "not remotely sufficient." "The longer it waits, the bigger the danger that the situation could deteriorate," said David Kern, economic adviser to the British Chambers of Commerce. In addition, the rate cuts in the US have been even more dramatic with the Fed having slashed 125 basis points off its benchmark rate in less than a month in a bid to boost investor confidence in the world's biggest economy. Despite criticism emerging from London's financial centre, analysts are broadly agreed that the Bank of England will not be tempted to follow the example of the US Federal Reserve and resort to dramatic cuts in the core interest rate. Data released last week also showed the 15-member eurozone has not escaped renewed inflationary pressures with consumer prices in the currency bloc once again overshooting the ECB's 2-per-cent threshold to hit 3.2 per cent last month. A separate survey, also released last week, reported economic sentiment in the eurozone has slumped to a two-year low. In fact, inflation among the 15 nations that have adopted the euro climbed to its highest level since the launch of the common currency in January 1999. Nevertheless, many economists are now forecasting the ECB will cut its benchmark refinancing rate by 50 basis points by the end of the year. This would bring borrowing costs in the eurozone down to 3.5 per cent by December with both the ECB and analysts believing that eurozone inflation could now be close to its peak.
