The European Central Bank (ECB) refused to cut the Continent’s base rate yesterday and called for unions and companies to hold off wage and price increases to avoid adding to inflationary pressures.

Jean-Claude Trichet, the ECB president, kept the eurozone’s main lending rate at 4 per cent on the day that the Bank of England shaved 0.25 per cent from its own base rate to 5 per cent. The US Federal Reserve is expected to cut at least another quarter point from its 2.25 per cent rate this month.

Mr Trichet is worried about inflation and has tried to strike a balance between dealing with strong inflation and slowing growth in the wake of global financial turmoil. He said yesterday that he hoped that keeping the base rate at 4 per cent would encourage price stability. He also indicated yesterday that the rate was likely to remain unchanged for some time, forecasting a “rather protracted period of temporarily high rates of inflation”.

Eurozone inflation hit a 16-year high of 3.5 per cent last month and the ECB said that it expected inflation to stay significantly above its target of 2 per cent for a few months.

Economists expect Mr Trichet to hold rates at least until September. Katrin Robeck of Moody’s said: “Once inflation eases on the back of falling commodity prices in the latter months of the year, the ECB should become a little easier about cutting interest rates and a first rate cut – odds being on September – becomes more likely.”

Mr Trichet asked unions and companies to refrain from lobbying for wage rises or increasing prices. He described wage and price rises as “second-round effects”. European consumers have faced rising gas, electricity and housing costs and sharp increases in the cost of staples such as bread and eggs. Second-round effects have previously led to mass unemployment in Europe, Mr Trichet said.

Addressing concerns about slower growth in the region, the ECB president said that the Eurozone’s economic fundamentals were sound but that the financial markets volatility produced by the credit crunch remained high. He did not say how long he expected the volatility to continue.

Commentators welcomed the Bank of England rate cut but said that the base rate should have been kept closer to that of the ECB.

Clem Chambers, the chief executive of ADVFN, the financial website, said: “It’s too little, too late. UK interest rates need to be in line with the ECB’s rate of 4 per cent but that is not going to happen soon. The UK economy is heading into recession which, thanks to the BoE, is likely to be harsh and long.”

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