BANK OF ENGLAND CUTS RATE, ECB HOLDS STEADY

The Bank of England, the central bank of the United Kingdom, cut its key interest rate from 5.5% to 5.25% today while the European Central Bank (ECB) held firm at 4.0%. This is the second rate cut for the Bank of England while the ECB has been at 4.0% since June of 2007.

From USA Today:

Many say the bank [ECB] 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% 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.

ECB AND BANK OF ENGLAND HOLD INTEREST RATES

From The New York Times:

The European Central Bank held its benchmark interest rate steady at 4 percent on Thursday, resisting pressure for a cut in the face of a rising euro that some fear will hurt Europe's economies.

Markets will be paying close attention to what ECB President Jean-Claude Trichet says about how the central bank plans to ward off more disruption from U.S. subprime credit woes and the dollar, which has weakened since the U.S. Federal Reserve made a larger-than-expected rate cut.

In London, the Bank of England decided to leave its key interest rate unchanged at 5.75 percent, a move most analysts had predicted. Howard Archer, chief U.K. and European economist at Global Insight, said a move by the British bank to cut rates would have been premature.

"Indeed, a cutting of interest rates at this stage could have been seen as a panic move and risked damaging the bank's anti-inflation credibility," he said in a statement.

SOME EUROPEANS FEAR POSSIBLE DOWNSIDE OF A STRONG EURO

From The New York Times:

Fears of an abrupt economic slowdown in Europe deepened on Friday, after the release of weaker-than-expected data and another record in the euro’s relentless rise against the dollar.

Europe’s stampeding currency prompted a warning from the plane maker Airbus that it might have to cut costs more deeply than expected to restore its troubled operations to financial health.

“If the euro remained durably at $1.45, that would mean we have to find 1 billion euros in additional savings,” Fabrice Brégier, the chief operating officer, said in an interview with a French radio station. The euro briefly traded at $1.41 on Friday morning before falling back slightly. It was at $1.4091 in late trading in New York.

Most European exporters have weathered the rally without complaint, having cut costs and hedged their exposure, either financially or by moving production to countries that do not use the euro.

But a noisy minority is starting to agitate, and political leaders, notably in France, have picked up their concerns, lobbying the European Central Bank to take steps to stem the euro’s appreciation.

“We hope the E.C.B., at its meeting in October, will examine the consequences and take appropriate action,” the French finance minister, Christine Lagarde, said during a visit to China on Friday.

Airbus is particularly vulnerable because it earns all its revenue in dollars and incurs about half of its operating costs in euros. That puts it at a big disadvantage to its American rival, Boeing.

Under its existing plan, Airbus plans to cut 2 billion euros ($2.8 billion) a year in costs by 2010, through the sale of several factories and the elimination of 10,000 jobs. In his radio interview, Mr. Brégier said the cost-cutting plan was predicated on a euro exchange rate of $1.35.