Bank Of England Lowers Rates While Euro Zone Stays Put

From the Houston Chronicle:

“The Bank of England cuts interest rates for the first time in two years by a quarter of a percentage point to 5.5 percent amid fears that the global credit crunch will significantly slow economic growth. The European Central Bank holds its rate steady at 4 percent as it waits for more data on the economic outlook.

THE SIGNS: Calls for a rate cut in Britain, despite rising inflation, were accelerated by surveys showing the country's decade-long house price boom is coming to an end and deteriorating consumer confidence. The ECB was under less pressure to move, despite surging inflation, because of relatively solid economic growth in the euro zone.”

From Forbes:

‘”Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow,’ said the Bank of England.

Meanwhile, the European Central Bank said it would hold its key interest rate at 4.0% on Thursday, a move widely expected by economists after eurozone inflation showed no sign of easing last month.

‘The latest information has confirmed the existence of strong short-term upward pressure on inflation,’ said the ECB on Thursday. Monthly inflation estimates from the European Commission in November showed price increases hitting a six-year-high of 3.0%, up from 2.6% in October.”

From Guardian Unlimited:

“’The reappraisal of risk in financial markets is still evolving and is accompanied by continued uncertainty about the potential impact on the real economy,’ said Trichet. ‘We will therefore monitor very closely all developments by acting in a firm and timely manner.’

However, Trichet made clear the ECB was not dropping its guard on the danger of knock-on or ‘second round’ effects of high oil prices on broader inflation, despite the turmoil on financial markets.

‘We will ensure that second round effects and risks to price stability over the medium term do not materialise,’ he said.

The Bank of England cut interest rates by a quarter percentage point to 5.5 percent earlier on Thursday, while the Bank of Canada surprised markets with a similar cut on Wednesday. Economists expect another rate cut from the U.S. Federal Reserve on Dec. 11.”