Auslanco - GBP/JPY and GBP/USD (newstrade)

BRUSSELS (MNI) - The European Central Bank will keep its interest
rates on hold following its decision Thursday to raise rates by 25 basis
points Fitch ratings agency predicted Friday.

In a quarterly report on the global economic outlook Fitch also
predicted that the next move by the Bank of England would be to loosen
monetary policy and said it didn`t see the U.S. Federal Reserve hiking
rates until the early part of next year.

"The forthcoming broader slowdown in the context of improved
supply-side potential in Germany means the ECB will remain on hold after
the latest 25bps increase" the report says.

Whilst the euro area has shown more resilience than other parts of
the world there are "strong headwinds" facing the 15-country zone as
Spain and Italy slow sharply. The French economy holds the key to future
euro area developments Fitch argues.

The U.S. seems to have avoided recession in the first half of this
year but Fitch still believes a U.S. recession to be "a likely prospect
in 2008." Moreover the sub-trend growth pattern is likely to be
extended into 2010 although the slowdown will be less pronounced than
in the early 1990s Fitch believes.

This slowdown means that the Federal Reserve is unlikely to begin
tightening monetary policy in the near future despite ballooning prices
in the U.S according to the report.

"The Fed has also become increasingly vocal about inflation of
late but the likely recession will squeeze core inflation meaning the
Fed is unlikely to start raising rates until early next year" Fitch
argues.

Finally the agency predicts that the next move by the Bank of
England will be to cut rates.

"Despite the rise in inflation we expect the next move in UK
interest rates to be downwards as the economy slows sharply" the report
says predicting that UK GDP growth will slow to 1.1% next year the
weakest level since 1992.

-- Brussels newsroom: 0032-2-230-4370 email: [email protected]