/www.bloomberg.com/ By Reed V. Landberg, with reporting by Christian Baumgaertel
London, Oct. 10 (Bloomberg) -- The Bank of England and the European Central Bank will probably keep interest rates steady for an 11th month amid signs their economies may escape recession.
The ECB will leave its benchmark rate for the dozen euro nations at 3.25 percent, all but two of the 15 economists surveyed by Bloomberg News said. U.K. policy makers may keep credit costs at a 38-year low of 4 percent, a separate poll of analysts showed.
``The U.K.'s economy is strong enough that you can make a good case against a cut,'' said Andrew Clare, an economist at Legal & General Asset Management Ltd., which oversees 118 billion pounds ($183 billion). ``The ECB should cut, but probably won't.''
U.K. house prices rose at a record pace in September and people borrowed more than ever against the value of their homes. At the same time, manufacturing is still struggling to recover from the worst slump in two decades. In Germany, where the economy is barely growing, factory orders and production rose in August.
ECB President Wim Duisenberg said Tuesday rates will probably stay put and the euro region's economy needs ``stability'' to recover. Bank of England Governor Sir Edward George said last month the U.K. economy is recovering ``gradually.''
U.K. retail sales rebounded in September, the Confederation of British Industry said last week, after dropping to a two-year low in August. Banking, airline and other service industries grew for a ninth month in Britain. In the rest of Europe, services contracted.
The Bank of England will announce its decision at noon London time. The ECB will follow 45 minutes later.
`Need Rate Cuts'
More than half the economists surveyed predict the ECB will cut borrowing costs by at least a quarter of a percentage point by the end of this year. In the U.K., four of the 22 economists said the Bank of England may lower rates.
``In Europe, things are getting worse,'' said Alex Alcaraz, who helps manage 11 billion euros ($10.9 billion) in fixed income assets at Gescaixa in Barcelona. ``We really need rate cuts.''
Futures trading suggests rates may be cut before year's end. The yield on the three-month Libor contract due in December fell to 3.80 percent on Wednesday from 4.08 percent a month ago. The December Euribor contract fell to 2.96 percent from 3.23 percent.
The ECB has reason to reduce borrowing costs. German unemployment remained near a three-year high of 4.1 million in September. French business confidence matched a four-year low. Fiat SpA is paring 8,100 jobs and shutting down some factories.
Welteke Sees No Recession
The economy of the dozen nations sharing the euro expanded 0.3 percent in the second quarter. Last week, France trimmed its forecast for third quarter growth to 0.4 percent from 0.7 percent.
Germany's benchmark DAX index of stocks has tumbled 50 percent this year. France's CAC-40 index is down 42.5 percent.
``The economic recovery will be later and weaker than previously expected,'' said Ernst Welteke, one of 18 ECB rate setters. ``Still, they do not point to a new recession.''
Britain's economy is faring better. Gross domestic product grew 0.6 percent in the second quarter. Retailers including Marks & Spencer Plc and Boots Co. are hiring staff. Consumer spending accounts for about two-thirds of the economy. The FTSE 100 index has declined 28.2 percent this year.
``Central banks are standing by to move if circumstances dictate,'' said Philip Shaw, an economist at Investec Bank U.K. Ltd. ``The ECB can't cut rates because inflation still is above its range. If the Fed cuts in November as we expect, the Bank of England could follow.''
Inflation in the euro region rose to a five-month high of 2.2 percent in September, topping the ECB's 2 percent limit for the 24th out of 28 months. Duisenberg said he opposes relaxing the ECB's inflation goal.
Inflation will be close to 2 percent for the rest of the year, dipping below the limit in 2003, Duisenberg said Tuesday. The euro's rise and economic slowdown are damping price increases, compensating for higher oil prices, he added.
The U.S. Federal Reserve cut its overnight rate 11 times last year to a 41-year low of 1.75 percent. Two of the Fed's 12 policy makers voted to cut rates at the bank's Sept. 24 meeting