European interest rates cut by 0.5%

The European Central Bank today cut interest rates by a half point, taking the eurozone's base rate down to 2.75% in response to sluggish economic growth and high German unemployment.

The announcement came shortly after the Bank of England announced it was holding the UK base rate at 4% for the 13th successive month.

The rate cut is the first in a year by the ECB. On Tuesday its president, Wim Duisenberg, said that inflation had receded since the bank's last meeting, opening the way for a cut.

Unemployment figures from Germany yesterday underlined the need to boost the eurozone's largest economy. Last month the jobless rate there reached its highest level for more than four years.

"It's important that the ECB cuts rates today, because one of the areas where you'd hope for a growth surprise next year would be Europe. That would be good for general sentiment," Andrew Bell, equity strategist at Carr Sheppards Crosthwaite, told the Reuters news agency in advance of the decision.

Earlier today, the Centre for Economic Policy released a report calling for deeper rate cuts across the eurozone. Researchers said weak forecasts for growth and the appreciation of the euro should have resulted in rate cuts of 1.4 percentage points this year, but instead the ECB has held rates unchanged.

David Begg, co-author of the report, criticised the ECB for failing to act, particularly as the US had slashed rates in response to a downturn.

"In the last few months eurozone growth forecasts have been revised down, yet the ECB has done nothing. In contrast, US growth forecasts have been revised up and the Fed has cut," he said.