ECB rates stick on price concerns

High food and oil prices have pushed up the cost of everyday essentials such as bread and petrol, sending inflation to record levels in previous months.

ECB President Jean-Claude Trichet has been resisting calls from business groups claiming that the high borrowing costs are hurting their profits.

Earlier, the Bank of England left its main interest rate unchanged at 5.25%.

"Looking ahead we expect a more protracted period of relatively high rates of inflation that we did a few months ago," said ECB president Jean-Claude Trichet.

But he insisted that the ECB governing council's monetary policy would deliver lower inflation in the medium term.

Powerful euro

One of the main concerns for businesses is the strength of the euro, which is being underpinned by the interest rate level.

The euro has climbed to record levels against the US dollar, and the worry for exporters is that foreign demand will wane as a result.

A rate cut, they argue, is needed to weaken the euro and stoke up exports.

"The euro's continuing appreciation is becoming alarming," the European Trade Union Confederation warned.

The group explained the strong euro would exacerbate problems already being caused by wobbles in the world financial markets, slowing global growth and weakening housing markets in a number of key economies.

However, the ECB has argued that the eurozone's underlying growth is fundamentally sound and it is inflation, rather than recession, that poses the greatest threat to stability.

"Price stability is a prerequisite for sustainable growth and job creation," Mr Trichet said.

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