Trichet lays ground for eurozone rate cut

Jean-Claude Trichet, president of the European Central Bank, hinted strongly yesterday that eurozone interest rates could be cut if the economy fails to pick up as expected.

Mr Trichet warned that consumer confidence was weaker than expected at this stage of the economic cycle, and if expected growth in household consumption and domestic demand failed to materialise "we would work out our assessment accordingly".

His remarks, in the German newspaper Handelsblatt, were reinforced by Guy Quaden, governor of the Belgian central bank and a member of the ECB's rate-setting council.

Though eurozone rates, at 2%, are already low, the bank still had room for further reduction, Mr Quaden said.

Analysts said the comments increased the prospects of a rate cut, though the ECB was unlikely to move when it meets next week.

EU leaders gathering for a summit in Brussels today will receive a downbeat review of progress towards improving the region's long-term economic performance.

The EU launched its "Lisbon process" in 2000 with the ambitious goal of transforming itself into the "most dynamic and competitive knowledge-based economy in the world" by 2010. Its target of 3% annual growth and the creation of 20m jobs now seems out of reach, with growth at 1.75% since 2000. The EU will also almost certainly fail to reach its overall Lisbon goal of 70% employment by 2010.

"I can't really expect any major progress to be made in this area," commission president Romano Prodi admitted yesterday.

Gordon Brown, accompanying Tony Blair to Brussels, wants the EU to cut regulation, set national job creation targets and encourage innovation.