Interest rates in the 15-nation eurozone ended up higher yesterday than those in the UK for the first time since the single European currency was introduced in 1999, despite taking a cut of half a percentage point.

The European Central Bank reduced its rate to 3.25 per cent after considering but unanimously rejecting a three-quarter-point reduction that would have given parity with the Bank of England's new 3 per cent rate.

Jean-Claude Trichet, the ECB President, said that inflation was projected to continue to fall and that a further cut was possible next month but kept all his options open.

The rate-cutting sentiment was shared across the Continent yesterday, with the Swiss National Bank reducing its rate by half a point to 2 per cent in only its second rate cut in five years and the Danish central bank lopping off the half-point that it added only last month.

It was the second half-point cut in less than a month for the ECB after the co-ordinated move with the Bank of England and the US Federal Reserve on October 8 in response to the financial crisis.

Economists have forecast that the ECB will continue to cut borrowing costs at the most aggressive pace in its history, taking its key rate to 2.5 per cent by April. This comes after a European Commission assessment this week that the eurozone is probably already suffering its first recession.

Mr Trichet said after the ECB meeting in Frankfurt that its rate-cut decision had been made in response to slowing economic growth and that it was justified by fading inflation concerns.

He said: “I do not exclude that we could decrease rates again, but ... we are not pre-committed in any respect. We will do whatever is necessary to take into account the situation as it will unfold progressively.”

The meeting was unanimous in thinking that a significant decrease in rates was appropriate, Mr Trichet added. He said: “We discussed several options. Options of diminishing rates by 50 basis points, options of diminishing rates by 75 basis points. All taken into account, after having checked and discussed the pros and cons of those different options, we decided unanimously it was appropriate to decrease by 50 basis points.

“We always do what is appropriate to be able to tell our fellow citizens that we will deliver price stability in the medium term, according to our mandate.”

The ECB President said that recent falls in commodity prices should see annual inflation continue to decrease in 2009 — a hint that conditions would be ripe for further rate cuts.

“With regards to price developments, annual HICP [harmonised index of consumer prices] has remained considerably above the level consistent with price stability since last autumn,” he said.

“However, it has been steadily declining since July, falling, according to the Eurostat's flash estimates, to 3.2 per cent in October, from 3.6 per cent in September and 3.8 per cent in August. The continued high level of inflation is largely due to both the direct and indirect effects of past surges in energy and food prices at a global level.

“Looking forward, recent sharp falls in commodity prices, as well as the ongoing weakening of demand, suggest that the annual HICP inflation rate will continue to decline in the coming months and reach a level in line with price stability during the course of 2009.”

The Swiss central bank said: “The global economic outlook has deteriorated more severely than anticipated, which will impact growth in Switzerland in the next few quarters. The economic slowdown, the decline in the price of oil and the appreciation of the Swiss franc are reinforcing the expected drop in inflation.

“Today's relaxation of monetary policy provides an impetus to economic activity, and will not jeopardise the return to price stability.”

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