Berlin - Europe's leading central banks are likely to hold interest rates at historic lows at their meetings this week as they wait for evidence that the region's recovery from its steepest economic downturn in a generation is taking hold. With inflationary pressures also dwindling, analysts predict the European Central Bank (ECB) will announce on Thursday that it has left its benchmark refinancing rate unchanged at 1 per cent while the Bank of England (BOE) will say it has kept borrowing costs at 0.5 per cent.
"An unchanged rate decision from the ECB[0x2026]looks a stone cold certainty," said ING Bank economist Martin van Vliet with the Frankfurt-based ECB holding on Thursday one its regular out of town meetings in Venice.
Thursday's European interest rate announcements also come one year after both the ECB and the BOE joined the world's other top central banks in launching coordinated action to shore up global economic confidence in the wake of the implosion of the US investment bank Lehman Brothers.
But with only the faint outline of an economic recovery having so far emerged, the European central banks are also unlikely to signal this week any changes to the plans they have announced for shoring up the financial sector by pumping mass liquidity into the monetary system.
The BOE has already indicated that it plans to wait until November before deciding whether to extend its 175-billion-pound (279-billion- dollar) quantitative easing (QE) program, said Vicky Redwood, analyst with the economics research group Capital Economics.
"October's meeting will therefore be something of a non-event," Redwood said.
"Overall, then, it still looks likely to be a long, slow recovery," Redwood said.
Economists are certainly concerned that consumer spending might come under renewed pressure in Britain in the coming months and that the pickup in the nation's key housing market might slow.
Consequently, many analysts believe that the BOE will top up its QE program by 25 billion pounds next month.
The International Monetary Fund said last week it expects both the British and eurozone economies to contract by more than 4 per cent this year before expanding modestly in 2010 (0.9 per cent in Britain and 0.3 per cent in the eurozone).
Unemployment in Britain and the eurozone has climbed to a more than ten-year high of 7.9 per cent in the three months to July in the UK and 9.6 per cent in the currency bloc in August.
What is more, economists are warning that European unemployment could rise next year as the region's projected tentative economic growth rates hits the labour market.
Rising job fears also risk undercutting private consumption, which in turn would leave Europe's growth prospects resting on a pickup in exports.
But overhanging the eurozone's export machine has been the recent strong performance of the euro, which has gained about 16 per cent against the dollar over the last 8 months.
With this in mind, some analysts believe ECB chief Jean-Claude Trichet could repeat this week at his monthly press conference the warning made at the weekend of G7 finance officials about the economic and financial risks posed by "excess volatility and disorderly movements" in national currencies.
But while the eurozone is expected to emerge from recession this quarter, the sense of economic uncertainty about the currency bloc's outlook means that analysts believe the region's interest rates could remain at 1 per cent until the middle of next year or even longer.
That said, however, Trichet might also use his press conference following Thursday's rate announcement to step up the pressure for eurozone governments to layout a timetable for winding back the anti- crisis fiscal plans they launched to combat the economic slowdown.
At their summit in Pittsburgh earlier this month, the leaders Group of 20 major economies agreed to coordinate moves to wind back their stimulus packages but stepped back from laying out a timetable.
In the meantime, data released last week showed eurozone consumer prices falling by 0.3 per cent in September compared to the same month last year, as a result leaving annual inflation well below the ECB's target of inflation coming in at close to but below 2 per cent.
Inflation in Britain has fallen to its lowest level since February 2005, official statistics released last month showed, declining to an annual rate of 1.6 per cent in August from 1.8 per cent in July.
