Bank Of England Cuts Interest Rate

The European Central Bank held its key interest rate steady at 4 percent while the Bank of England cut its benchmark rate by a quarter percentage point to 5.25 percent on Thursday.

Both central banks face inflation and concerns about a global economic slowdown.

The Bank of England lowered its key interest rate for the second time in three months, while the ECB left its benchmark rate at the same level it has been since June 2007.

Markets participants were waiting to hear from ECB president Jean-Claude Trichet for a detailed explanation behind the decision and to get some indication about the bank's future plans.

Many say it the bank may have to cut rates later this year despite the rising level of inflation in the 15-nation euro zone - a bloc of more than 318 million people that accounts for more than 15 percent of the world's gross domestic product.

The Bank of England's decision was expected given that its governor, Mervyn King has acknowledged that the bank is facing a "difficult balancing act," with inflationary pressures from higher energy and food prices and a falling British pound weighed against data showing slowing economic activity and turbulence on financial markets.

"The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued," the Bank of England said in the statement explaining its rate cut.

In the United States, the Fed has cut rates five times since September in an effort to spur the economy and encourage reluctant banks to issue credit to each other, companies or consumers.

But the ECB's specific mandate is to control inflation, which hit an all-time high in January of 3.2 percent, its highest level since the euro was adopted and far above the ECB's comfort level of around 2 percent. Even more worrying were the findings by Eurostat that business and consumer confidence fell to their lowest levels in two years, raising the possibility of "stagflation," or higher prices and stagnant growth.