While the Bank of England cuts the UK interest rates in June again, The
chief European financier warns that tensions in the market could lst much
longer.

FRANKFURT, GERMANY (APRIL 10, 2007) REUTERS -

Financial market tension could last longer than expected, European
Central Bank President Jean-Claude Trichet warned on Thursday after the ECB
held interest rates at 4.0 percent on Thursday (April 10).
    Euro-zone inflation was only likely to ease slowly this year from
current record levels, Trichet said, adding that the ECB's general sentiment
on rates and the economic outlook had not changed over the past month.
    "The level of uncertainty resulting from the turmoil in the
financial markets remains unusually high and may last longer than initially
expected. Against this background, we emphasise that the firm anchoring of
medium to longer term inflation expectations is of the highest priority to the
governing council. We believe that the current monetary stance will contribute
to achieving this objective," Trichet said.
    Euro zone inflation hit a record 3.5 percent in March, despite the
dampening effect of the strong euro, which recorded a fresh high against the
dollar on Thursday as the U.S. economy worsens and jitters persist on
financial markets.
    Wage negotiators had a duty not to factor temporarily above-target
inflation into salary demands and cause high inflation to become entrenched,
Trichet insisted.
    "The governing council remains strongly committed to preventing
second-round effects and the materialisation of upside risks to price
stability over the medium term. We will continue to monitor very closely all
developments over the coming weeks," he said.
    Trichet said that the ECB's current interest rate contributed to
keeping longer-term expectations for inflation under control - as last month -
and that the ECB's message had not changed since March.
    In Britain, it the prospects for the public seemed to be better. The
Bank of England will probably cut interest rates again before or at its June
meeting after it lowered them on Thursday, seeking to head off a sustained
economic downturn, a Reuters poll showed.
    The survey showed a swathe of data pointing to a slowing economy has
prompted economists to bring forward their forecasts for future rate cuts from
the timings they gave in a poll taken just last week, despite rising
inflation.
    The central bank cut rates by 25 basis points to 5.0 percent on
Thursday after making the same size cut in February and lowering them in
December by a quarter point for the first time in two years. Thirty-six of 56
economists polled on Thursday said rates would fall to 4.75 percent by the
June meeting, with 8 of them forecasting a cut in May.
    Median forecasts showed the Bank Rate dropping to 4.75 percent by
mid-year and then again to 4.5 percent by September, where it will remain
until September 2009. An April 3 poll predicted the rate would not fall to 4.5
percent until the fourth quarter.
    Mortgage lenders have been tightening their lending criteria, even
though official rates have come down, in a bid to maintain profits as it
becomes harder for the banks themselves to borrow money.
    Asked to assess probabilities, economists gave a median 65 percent
likelihood that rates would fall again by June and a 95 percent probability
that they would fall by year-end.
    British rates have not fallen anywhere near as quickly as in the United
States, where they have tumbled 3 percentage points since September and are
set to fall further as the Fed tries to prevent a recession in the world's
biggest economy.