Both the Bank of England and the European Central Bank left interest rates unchanged today. Economists say rate cuts will likely resume in the UK, but inflation fears will keep the ECB on hold.

The Bank of England left its repo rate unchanged at 5.25% today, and issued no policy statement as a result.

CIBC World Markets says that after the Bank delivered a 25 basis point rate cut in February, a stand pat decision “was highly anticipated today and consistent with the Bank’s recent policy language”, however, it notes that it expects further rate cuts throughout 2008.

CIBC points out that tighter credit remains a problem for the UK economy, “not only at the consumer level but also at the business level and in the housing sector. These are all linked, with tighter market rates restricting mortgage activity, with negative impact on the housing sector and eventually on the consumer sector too.”

“The outlook is clearly not rosy for the UK economy at this stage and further rate cuts will have to be delivered soon,” it says. “A month after the February rate cut, the MPC has opted to wait and see this month, but another 25 bps rate cut is most likely before the end of Q2.”

The ECB also left its key rates unchanged. CIBC suggests that ECB president Jean-Claude Trichet “does not sound like a central banker who may be about to cut interest rates.”

“Indeed, a first glance at the ECB’s press statement is consistent with our view that the policy of wait and see is here to stay for a while longer, for now Eurozone rate cut hopes is just wishful thinking,” it notes.

CIBC adds that the ECB’s press conference confirms that rate cut hopes are in vain for the time being. “Indeed, the ECB staff projections may have revised both this year and next year’s growth forecasts to the downside (and below trend) but the inflation forecast was revised significantly higher — and significantly above the 2% ceiling for both years,” it notes. “This is a dilemma position for the monetary authorities but the ECB president highlighted (again) that price stability remains the top priority, so cutting rates is clearly not on the agenda for now.”