The Bank of England today cut its benchmark lending rate a quarter point to amid gloomy data on house prices, but the European Central Bank held its key interest rate steady as it focuses on record inflation.

The Bank of England cut its key interest rate by a quarter percentage point to 5% amid falling house prices and tightening credit standards as the continuing money-market turmoil looks set to dent U.K. economic growth.

Today’s cut is the UK central bank’s third since December and brings the UK’s policy rate to its lowest level since November 2006

Meanwhile, the ECB left rates unchanged at 4%, amid inflation of 3.5% and signs the euro-zone slowdown so far is moderate.

TD Bank notes that the Bank of England’s move was widely anticipated, although there was some talk of a possible 50 bps cut. “In the statement accompanying their decision, the MPC stated that the cut to the base rate was justified by the inflation outlook in the medium term. So, in spite of rising food and energy prices, the Committee sees sufficient downside risks to growth which will act to keep inflation pressures from spreading,” TD says.

“We have argued since last December that the downside risks to growth would lead the BoE to cut more aggressively than the market was expecting. We still believe market expectations are behind the curve,” TD adds.

It notes that interest rates are still in restrictive territory, so it expects another 25 bps cut in June, with an additional 75 bps of easing by January 2009, bringing rates to a 4.00% bottom. “This is one additional quarter-point cut than we were previously forecasting. This appears justified as we believe the MPC’s faith that downside risks to growth will trump inflation pressures in the medium term will be borne out,” it says.

As for mainland Europe, TD says that the ECB believes economic growth moderated in the first quarter of 2008 and does recognize that downside risks to growth prevail. “However, they cited ongoing investment growth, high capacity utilization, falling unemployment rates, and no significant supply constraints on bank loans as several of the ongoing positives for the economy,” it notes. “Moreover, they have continued to stress that they expect inflation to moderate only slowly in the near term and believe that the medium term risks remain to the upside.”

“With the official rate at the neutral level of 4.00%, the ECB can still afford to be patient in their inflation watch — and we believe they will continue to take just this liberty. Therefore, while we still expect to see two cuts from the ECB this year, we believe a skeptical ECB will wait until September and December to cut interest rates to a low of 3.50%,” it predicts.