Frankfurt, May 5 (Bloomberg) -- The European Central Bank will probably keep interest rates unchanged on Thursday after policy makers said they expect economic growth to start picking up later this year, a survey of economists showed. All but two of the 35 economists surveyed by Bloomberg News said the ECB will leave its benchmark rate at 2.5 percent. Thirty see borrowing costs at least a quarter point lower after the June meeting. The Bank of England will keep its rate at 3.75 percent, a majority of economists polled in a separate survey said. ``The ECB will wait,'' said Carsten Klude, an economist at M.M. Warburg & Co. in Hamburg. ``Most early indicators were miserable recently, though the bank will barely take this as enough proof the economy is faltering.'' European manufacturing shrank for the seventh time in eight months in April, and business confidence in Germany, the region's largest economy, fell to a 16-month low. Western European first- quarter new commercial-vehicle sales dropped an annual 2 percent.
The ECB has lowered the price of money twice since early December, by 0.75 percentage point. Another reduction would take rates to the lowest in any of the 12 countries that share the euro since 1948. Officials last week signaled they're in no rush to pare borrowing costs again. ``We continue to expect a rather moderate pace of economic growth in the first half, followed by a gradual acceleration of economic activity'' later in the year, ECB Vice President Lucas Papademos told the European Parliament last Tuesday. ``Risks have diminished following the end of the war in Iraq.'' The ECB is scheduled to announce its rate decision at 1:45 p.m. Frankfurt time on Thursday. Duisenberg will brief the press 45 minutes later.
Bank of England
The Bank of England will probably hold interest rates at a 48- year low even as the U.K. economy grew at the weakest pace in a year in the first quarter, 20 of the 38 economists surveyed by Bloomberg News said. The U.K. central bank will announce its rate decision at noon on Thursday in London. Expectations of a rate cut this week have receded as the pound weakened, and retail sales and manufacturing showed signs of recovery. Most economists expect the bank to lower rates for a second time this year in coming months as consumer spending, which makes up two-thirds of Britain's economy, slows. ``Without firm evidence of a rebound in activity, we still tend to the view that rates should fall by a further 25 basis points over the coming months,'' said Philip Shaw, chief economist at Investec Bank U.K. Ltd.
Fed Also Unchanged
Investors expect the Bank of England and the ECB to have cut rates by about a quarter point by September, interest rate futures trading shows. The yield on the three-month Euribor contract maturing in September was 2.24 percent at 8:57 a.m. in Frankfurt, compared with a current money market rate of 2.5 percent. The U.K. futures rate was 3.41 percent compared with 3.59 percent. The U.S. Federal Reserve probably will keep its main rate at 1.25 percent on Tuesday. Fed Chairman Alan Greenspan last week said the U.S. economy, which grew a slower-than-expected annual 1.6 percent in the first quarter, will expand at a ``better pace'' this year. The $7 trillion economy of the dozen euro nations may have shrunk in the first quarter and will barely grow in the second, the European Union has said. European services probably shrank for a third month in April, a Purchasing Managers Index will show tomorrow, according to a survey. ``We are in the third year of stagnation and something has to be done,'' said Hans-Werner Sinn, president of Germany's Ifo economic institute, in an interview. The ECB ``should cut rates further. They have been too hesitant.''
ECB May Not Act
At the June meeting, ECB policy makers will have a new set of economic staff projections, which they get four times a year. The last time the ECB had forecasts was when the bank cut rates in March. ECB President Wim Duisenberg said the bank expects growth of about 1 percent this year. Some analysts say the ECB may not act at all. ``Recent comments show the ECB thinks the economic risks are now less because the war in Iraq is over, stocks are rising and oil prices falling,'' said Uwe Angenendt, chief economist at ING BHF-Bank AG in Frankfurt. ``If that becomes a reality, the ECB may not pare rates anymore, at least not in the foreseeable future.'' Oil prices have dropped by about 30 percent since March 12, and Europe's Dow Jones Stoxx 50 Index has gained more than a fifth in the period. The euro has climbed a quarter since the beginning of last year, damping inflation. Declining inflation gives the bank scope to lower rates to boost growth. The inflation rate, which the bank aims to keep below 2 percent, fell to 2.1 percent last month from 2.4 percent in March. The ECB has said it expects price increases to slow to below 2 percent in coming months. The economy of the dozen euro countries could use a boost, reports this week will show, according to Bloomberg News surveys. German March factory orders and industrial production are expected to fall, and unemployment is seen rising for a 13th straight month in April. //www.bloomberg.com