Central banks keep rates on hold

The ECB has kept interest rates on hold since November

LONDON, England (CNN) -- The European Central Bank joined the Bank of England on Thursday in holding the line on interest rates amid volatile stock markets and sluggish economic performance.

The ECB's decision -- which along with the BoE's move earlier was widely expected -- leaves the central bank's key lending rate at 3.25 percent. It has kept its rate on hold since November, after cutting it four times in 2001.

Earlier on Thursday, the BoE left its borrowing rate at 4 percent -- the lowest level in 37 years. It also has not altered it rate since November, after lowering it seven times in 2001.

Those cuts were part of a concerted effort by major central banks to reverse the global economic slowdown.

The Bank of England cut interest rates seven times in 2001

Now, with a recovery still fragile, many central banks are reluctant to change their monetary policies for fear of jeopardising what little economic gains have been made in the past six months.

Adding to those concerns over recovery, data released on Wednesday showed the U.S. economy slowed sharply in the second quarter with gross domestic product expanding 1.1 percent after growing 5 percent in the previous quarter.

"If the economic picture in the U.S. does not look particularly rosy at the moment, the eurozone's is little better," investment bank Bears Stearns said in a research note. "We very much doubt that the idea of rate cuts is passing the lips of any eurozone central bankers."

Bear Stearns added that with inflation "threatening the [central bank's] 2 percent target, business surveys softening and the stock market still in a parlous position, the ECB has an unenviable task right now."

On Tuesday, France's national statistics office INSEE said business confidence deteriorated to a three-month low in July as prospects for a sustained recovery in the eurozone's second largest economy faded.

That followed surveys of business leaders in Germany and Italy -- the eurozone's No. 1 and No. 3 economies, respectively -- that also showed a decline in confidence.

Unemployment is also running high in the eurozone, with companies continuing to cut back operations and layoff staff due to sluggish demand and falling prices.

The manufacturing sector has been particularly hard hit by the economic slowdown, which has been aggravated by the euro rise against the U.S. dollar -- making exports more expensive and further cutting into company earnings.

Analysts believe the BoE is faced with the same dilemma.

"Just a couple of months ago, it looked as if it was just a matter of time before the MPC [the BoE's Monetary Policy Committee] would hike rates. But now the jury is well and truly out and a rate hike by the end of the year is not a done deal any more," Bear Stearns said.