POLITICS

European Central Bank Cuts Interest Rates As Bank Of England Changes Nothing

05/06/2014 12:02 BST | Updated 05/06/2014 15:59 BST
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President of European Central Bank Mario Draghi waits for the beginning of a press conference following the meeting of the governing council in Frankfurt, Germany, Thursday, Feb. 6, 2014. The European Central Bank has left its benchmark interest rate unchanged, holding off on more stimulus despite weak economic growth and low inflation. The bank's 24-member governing council left the rate at 0.25 percent at a meeting in Frankfurt, Germany. Some analysts had thought the eurozone's monetary authority might cut the rate to 0.1 percent to try to boost growth more. (AP Photo/Michael Probst)

Eurozone interest rates have been slashed again as European policymakers have taken dramatic steps to keep the revitalize the moribund economy, while the Bank of England resisted calls to increase the cost of borrowing in Britain.

Mario Draghi, president of the European Central Bank, announced that interest rates will fall from 0.25% borrowing rate to 0.15%. The ECB also took the historic step of cutting deposit rates from zero to -0.1% in a bid to force banks to lend, as it will now cost banks to keep their cash with the central bank.

By contrast, the Bank of England was mocked for its "masterly inaction" as officials continued to keep interest rates at 0.5%, which has stayed the historic low for over five years.

Ex-MPC member Andrew Sentance said that the committee had 'continued its policy of interest rate inaction despite booming economy", adding: "Let's hope some members voted for a rise."

The Bank of England's decision is a sign that governor Mark Carney has resisted calls from colleagues to start raising UK interest rates sooner, with some rate-setters on the nine-person Monetary Policy Committee (MPC) said to be edging towards voting for a hike.

MPC member Martin Weale has called for a "sooner" interest rate rise, saying: "If you want to have baby steps, you do have to start sooner. The question is: how close are we getting to 'soon'? Of course, we can never be sure, but the economy... has sustained fairly rapid growth in demand."

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The MPC's mixed messages has caused concern from business groups. David Kern, chief economist at the British Chambers of Commerce, said: "Inconsistencies between Governor Carney’s reassuring remarks and other comments from the MPC are undermining. To sustain business confidence, the MPC must strive to communicate clear and consistent messages."

Meanwhile, the European Central Bank's interest rates decision comes as officials fear that the eurozone could fall into a spiral of falling prices, made worse by a sudden sharp drop in inflation to 0.5% in May.

Europe's prospects are still closely linked with the UK's, as a key trading partner, meaning that a continued crisis on the continent would threaten the burgeoning recovery in the UK. A Bank of England official warned today that the UK's recovery remains "fragile" and vulnerable to a range of domestic and external risks.