Interest rates unchanged in Europe

The economic news from Europe turned a little gloomier yesterday.

The European Central Bank kept rates unchanged yesterday.

The European Central Bank kept interest rates at a six-decade low for an 28th month to foster economic growth in the euro region even as higher oil costs push up consumer prices faster than the bank desires.

Policy makers, who met in Athens today, kept the benchmark interest rate at 2 percent, the lowest level since at least 1946. ECB President Jean-Claude Trichet said the bank is showing "strong vigilance" against inflation, the first time he's used such language in a press conference since November 2004.

But the latest economic data were weak

European retail sales fell in September for the first month in three, according to a survey of retail purchasing managers for Bloomberg LP by NTC Research Ltd. released today. Factory orders in Germany, Europe's largest economy, fell for the first time in four months in August, a government report showed today.

And economists are downgrading growth forecasts in Europe.

The euro zone economy will grow a less-than-expected 1.2 percent this year due to expensive oil, 10 European forecasting institutes said on Thursday, warning that a further, permanent oil price rise could do more damage. The Euroframe network of forecasters said the new forecast was 0.2-0.3 percent below its last estimate six months ago. It also forecast growth in 2006 at 1.8 percent.

Earlier on Thursday, the Commission also said economic growth in the euro zone would be 1.2 percent in 2005, lower than a previous forecast of 1.6 percent, despite signs of a recovery in the second half of the year.

It is a similar story in the UK.

The Bank of England left interest rates unchanged at 4.5 percent on Thursday, but analysts are hotly debating when and what the central bank's next move will be...

Industrial production unexpectedly fell a sharp 0.9 percent in August, which could significantly cut overall economic growth in the third quarter.

But house prices rose a strong 1.2 percent in September, the fourth consecutive monthly rise, according to the Halifax, the nation's largest mortgage lender, in a sign the August rate cut may already be working.

Third quarter growth is estimated to be weak.

Economic growth slowed to its weakest rate in four months in the third quarter of 2005 as industrial output waned, the National Institute of Economic and Social Research said on Friday.

The think-tank said the economy probably grew by 0.3 percent in the three months to September, down from 0.5 percent in the three months to August and the weakest rate since May.