updated 12/6/2007 8:05:13 AM ET 2007-12-06T13:05:13

The European Central Bank held its benchmark rate unchanged at 4 percent on Thursday, despite surging inflation and a stronger euro, as it considers how ripples from the U.S. subprime mortgage morass will affect the economy.

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Earlier Thursday, Britain cut its key rate by a quarter of a point to 5.5 percent, worried about a slowing economy.

Analysts expect the ECB, which oversees monetary policy the 13 countries that use the euro, to wait until the second quarter of next year before it moves again, in no rush to follow rate cuts in the United States and Canada.

“Inflation has increased over the recent months and economic data are not so weak that the ECB is really concerned about the economy in Europe,” said Commerzbank economist Matthias Rubisch. “If you look in the future, probably weaker economic data will lead to the ECB lowering rates.”

Higher prices for oil and food have led inflation in the euro zone — a bloc of 317 million people that accounts for more than 15 percent of the world’s gross domestic product — higher in recent months. It surged to 3 percent last month, according to a first estimate, its highest point since the currency was introduced into general circulation in 2002 and well above the ECB’s guideline of just under 2 percent.

Nearly all the analysts surveyed by Dow Jones Newswires believe the ECB will keep its rate unchanged until the second quarter of next year, with some predicting gradual decreases to as low as 3.5 percent by the end of the year.

“Money market rates are rising again, but with the ECB Council unconvinced about either a dramatic slowing of growth prospects or an impairment of credit supply, it won’t feel compelled to alter its policy course,” Deutsche Bank analysts wrote in a note to investors.

Most of the uncertainty in the markets traces back to the subprime mortgage debacle that originated in the United States and snaked worldwide because the bad loans had been repackaged and sold on to other banks. The worries about the U.S. housing market and the U.S. rate cuts have hurt the dollar, which has been setting new lows against the euro and trading around 26-year lows against the pound.

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