ECB hikes rates but BoE holds steady

The Bank of England today held interest rates at 0.5% as fears over a sluggish economic recovery outweighed inflation concerns.

However, the European Central Bank (ECB) hiked interest rates from 1% to 1.25% - the first time it has raised rates in nearly three years.

Today's widely-anticipated decision by the BoE's Monetary Poicy Committee to hold rates at historical lows comes amid a glut of gloomy economic data.

A report by the National Institute of Economic and Social Research pointing to "weak" growth over the last six months was published yesterday.

Figures also showed industrial output declined in February.

A slow-down in high street spending and the first annual fall in disposable income for 30 years has also heightened fears the recovery has lost track as George Osborne's spending cuts begin to bite.

Despite evidence of slackening growth, the Bank's Monetary Policy Committee (MPC) has come under mounting pressure to raise rates in order to dampen inflation, with the CPI index hitting 4.4% in February - more than double the Bank's target figure.

Today's rate decision comes amid continuing division within the MPC as the committee struggles to find a way of tackling surging inflation without snuffing out growth.

Minutes from its last meeting revealed a 6-3 split against a rate rise for the second month.

Whilst Spencer Dale and Martin Weale repeated their calls to hike the base rate by 25 basis points, Andrew Sentance again put forward his case for a 0.5% rise.

Shortly after the interest rate decision, London's leading share index was trading in negative territory, down 0.2% to 6,029.

The pound was down 0.2% against the dollar to $1.6296. Prior to the Bank's decision, it was trading around $1.6330.

Meanwhile, the ECB's decision to raise interest rates comes after Portugal became the third country to request an EU bail out yesterday.

Surging oil prices across the region, in addition to record growth in Germany, have stoked inflation concerns.

The European Commission recently upgraded its inflation forecast for the single currency block to 2.2%.

Today's decision means the ECB joins China and India in raising rates whilst the US Federal Reserve has opted to keep monetary policy loose.