MPC under attack as rates are left on hold

British industry yesterday attacked the Bank of England's decision to keep interest rates on hold as a missed opportunity to offset the impact of the global economic slowdown.

The European Central Bank also came under fire when it left borrowing unchanged and warned a cut could be some way off.

The euro slumped to within 1.5 cents of last October's nadir of $0.8228 as the ECB appeared to rule out an early move to help the struggling German and French economies.

In Britain the Engineering Employers' Federation said it regretted that the Bank's monetary policy committee had failed to follow the lead of the US Federal Reserve which last week cut interest rates for the sixth time this year.

"Manufacturing is in the front line of a rapidly weakening world economy and many parts of the service sector are now starting to feel the pain," according to EEF director general, Martin Temple.

The CBI expressed sharp disappointment at the decision to leave rates at 5.25%.

"Many sections of industry are coming under increasing pressure from the global slowdown and an interest rate cut now would have been timely in helping to mitigate its effects," said CBI deputy director general John Cridland.

The Chemical Industries Association took an even stronger line. It said it "deplored" the Bank of England's decision, describing it as "clear evidence of a lack of understanding of the severity of the problems facing manufacturing industry in general and the chemical industry in particular."

Finance ministers from the world's leading industrialised countries are expected to discuss the weakness of most important economies - including Germany, Japan and France - when they meet this weekend in Rome.

They are unlikely to discuss foreign exchange market intervention in support of the euro, according to a senior treasury official.

Explaining the decision to leave eurozone rates on hold at 4.5%,

ECB president Wim Duisenberg said: "Our monetary policy stance seems appropriate... and should bring inflation back in line with price stability in the medium term.This remains appropriate for some time to come. I can't be clearer than that.

"Maintaining a favourable perspective for price stability is the best contribution monetary policy can make to fostering economic growth over the long run," he said.

Though there had been little expectation that the ECB would cut rates yesterday, Mr Duisenberg's comments dampened hopes that the bank would move before the start of its summer break at the beginning of August.

"I think the more significant [comment] is that interest rates are appropriate for some time to come at this level... it's a little bit more of a defensive policy that he's indicating," said Claudio Piron at Standard Chartered.

The euro was further undermined by an unexpectedly rapid rise in unemployment figures from Germany and reports - quickly denied - that Germany and France, the eurozone's two largest economies, were seeking a relaxation of the budget rules imposed by the European commission's stability pact because of the sluggish pace of economic growth.

Foreign exchange strategists are now worried that the euro faces renewed turbulence. As the euro fell to $0.837 Nick Parsons at Commerzbank warned that the single currency "could go into free fall. We always said Thursday could be a big bad day for the euro."

Though Mr Duisenberg's comments indicate that the bank is more concerned about inflation - especially on labour costs - than growth the latest evidence from Germany showed the economy in far from robust form. Unemployment rose by a higher than expected 22,000 taking the total to 3.852m.

There was also bad news on the employment front from the US where the number of people staying on the unemployment rolls rose above 3m for the first time for more than eight years.