As expected, Europe’s major central banks left rates unchanged today, but rate moves are forecast for the months ahead, with concerns about both inflation and economic growth on the horizon.

The Bank of England’s Monetary Policy Committee today voted to maintain the official bank rate at 5.0%. And, the Governing Council of the European Central Bank 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 4.00%, 5.00% and 3.00% respectively.

Despite these stand pat decisions, economists are expecting plenty of rate moves in the months ahead, depending how economic conditions play out.

TD Economics indicates that the ECB is primarily worried about inflation, with consumer inflation now running at 3.6%. It notes that the Governing Council announced that it is in “a state of heightened alertness”, and while this is not the “extreme vigilance” phrase that markets have come to see as a signal of a near-term hike, TD says it reads the message as just that. “The main risk is that inflation will fail to moderate as expected in the medium term and could drive a more general increase in prices,” it says.

As a result, “Short of a miracle or disaster, the ECB will hike in July,” TD predicts.

Indeed, Stewart Hall, market strategist at HSBC Securities (Canada) Inc., indicates that the market has fully priced a rate hike by the ECB by year-end. He notes that this represents a reversal of rate cut expectations which were in play over the months of January through to March.

However, TD says it believes the ECB’s hike in July will be followed by two 25 basis point rate cuts in March and May of 2009. “This will be off the table, however, if oil prices do not cooperate or recent German weakness turns out to be fleeting,” it adds.

Inflation look more robust in the UK than the Eurozone, TD notes, and will likely not peak until late this year or possibly even the first quarter of 2009. “As a result, the BoE did signal that inflation, and not growth, is the paramount concern. This will keep cuts at bay for now, but has caused us only to shift our expected 100 bps in cuts further into the future with reductions coming in August, October, December, and March of next year,” it says.

“Again, as long as oil prices ease, the recessionary collapse in domestic demand in the UK will ensure little pricing power and little risk of rising inflationary expectations,” it concludes.