Europe’s central banks took divergent positions today, as the Bank of England cut rates 25 basis points, but the European Central Bank left rates unchanged. Both banks are now expected to keep rates on hold for the time being.

At today’s meeting the Governing Council of the ECB decided that the minimum bid rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4%, 5% and 3% respectively.

Meanwhile, the Bank of England’s Monetary Policy Committee today voted to reduce the official Bank Rate paid on commercial bank reserves by 25 bps to 5.5%, reversing a rate hike it announced in July.

“Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow,” the BoE said, adding, “conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train, posing downside risks to the outlook for both output and inflation further ahead.”

CIBC World Markets notes that, “The market had adjusted to a possible rate cut scenario over the past couple of sessions, following a series of worrying headlines (both from the financial markets and from the actual data) so today’s policy action is not a major shock.”

It concludes that today’s policy action was fully justified, but says that there is nothing in the statement really signaling that a further rate cut is on the agenda. “In fact, today’s rate cut decision is likely to have been highly debated (with a plausible split decision), so expect the MPC to want to wait and see in January. Looking further ahead though, we are still of the view that fresh weakness in the economy into early 2008 will trigger further BoE rate cuts,” it says.

The ECB’s decision was more universally expected, and CIBC adds that ECB president Jean-Claude Trichet’s press conference does little to alter its assessment for Eurozone rates. It expects the bank to take a wait and see approach to monetary policy over the next few months but if anything, the ECB is more likely to raise than cut interest rates at this stage, it predicts.

“For now, we stick to a no-change monetary policy outlook for the near-term, but should financial market conditions normalise early next year, the rate hike risk scenario could increase,” CIBC says. “The ECB has an inflation policy mandate, Eurozone growth is hovering close to trend and inflation is well above target: the risk has to be to the upside for rates.”