Euro rates held - and no rise in May, ECB hints

The European Central Bank surprised financial markets yesterday by hinting that an interest rate rise in May was far from being a done deal, as analysts had assumed.

The ECB left its key interest rate steady at 2.5% yesterday, as expected, but its president, Jean-Claude Trichet, said that a handful of strong data on the eurozone did not mean the central bank had to rush to tighten monetary policy.

"The present high probability which is given for an increase of rates in our next meeting does not correspond to the present sentiment of the governing council," he said.

The ECB has already raised rates twice, in December and March, from the 2% that had prevailed since the summer of 2003, in response to evidence that Europe was recovering from the doldrums of recent years. Economists now expect it to raise rates to 2.75% in June, rather than May.

Separately, a report from accountants KPMG said Britain was lagging behind the EU in tax competition as company tax rates had remained steady here while they had fallen in the eurozone.

The UK rate stayed at 30%, while the average EU rate fell by 0.28% to 25% following cuts in six member states including France, Germany and the Netherlands. The Treasury dismissed the latest survey, however, saying the UK's corporation tax rate was the lowest ever and the lowest of any major European economy.

The survey came after another KPMG report last month showed that, ranked as a low-cost destination for business, the UK had slipped from third place in the world to sixth over the past two years, overtaken by Italy and the Netherlands.