The European Central Bank kept interest rates at 4.0 percent today, as expected, as risks to economic growth are not yet big enough to overshadow the Governing Council's worries about inflation.

ECB President Jean-Claude Trichet is due to comment on the competing threats of higher consumer prices and slower growth later this afternoon when he holds his monthly news conference and delivers a quarterly update to the bank's economic projections. A

ll 72 economists polled by Reuters last week expected the ECB to leave rates unchanged. However, most predict the bank will cut rates to at least 3.75 percent by the end of June, assuming that record inflation has started to ease by then. Most expect Trichet to announce that the ECB's staff have revised down December's projections of 2.0 percent growth in 2008 and 2.1 percent in 2009, and that they have raised this year's inflation forecast from the current 2.5 percent. Annual euro zone inflation was 3.2 percent in January and February, the highest level since records began in 1997 and well above the ECB's target of just below 2 percent.

Apart from leaving its main refinancing rate at 4 percent, the ECB also said its deposit rate would remain at 3.0 percent and its marginal lending rate at 5.0 percent.

Earlier today the The Bank of England held interest rates at 5.25 percent, but is widely expected to cut them by the middle of the year to shore up an economy buffeted by the global credit crunch.

All but one of 65 economists polled last week forecast the Bank would leave rates on hold after cutting them twice in the past three months. These expectations were cemented by surveys this week showing inflationary pressures accelerating. But another cut is expected soon as other data show house prices falling and consumer confidence crumbling as worries mount over the U.S. economy entering recession.

"We expect the next move to come in May, in line with the consensus view, and see Bank Rate falling to a low of 4.5 percent by the end of this year," said George Buckley, chief UK economist at Deutsche Bank. Sterling edged up versus the dollar and euro, while interest rate futures slipped as some dealers had prepared themselves for the kind of surprise cut that the BoE has made in the past. The BoE made no statement to accompany its decision but policymakers have been out in force in recent weeks saying they had to balance the competing demands of slowing growth and rising inflation.

Soaring oil prices and the rising cost of food is putting huge upward pressure on inflation around the world. Policymakers are worried it could soon top 3 percent in Britain, requiring the central bank Governor Mervyn King to write an explanatory letter to the government.

Against that, however, the credit crunch is raising financing costs for both consumers and companies. The effects can already be seen in the housing market. Prices fell 0.3 percent in February, according to Halifax, the nation's largest mortgage lender.

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