updated 5/6/2004 9:33:36 AM ET 2004-05-06T13:33:36

The European Central Bank left interest rates unchanged Thursday, with recent economic data backing up its view that a modest upswing is on the way.

The widely expected decision by the bank's 18-member governing council left the key refinancing rate at 2 percent, where it has been for the past 11 months.

The bank, the chief monetary authority for the 12 countries using the euro, hasn't budged from its position that Europe's sluggish economy already is picking up speed _ and therefore doesn't need the spur that a cut in rates would give it.

New economic data last week only reinforced that view, with Germany's Ifo index of business executives' sentiment improving, along with a purchasing managers' index for the euro area.

Bank president Jean-Claude Trichet repeated the ECB's optimistic outlook in testimony before the European Parliament in Brussels last week, saying that 2004 and 2005 would see increased growth. Europe's economy grew only 0.4 percent in 2003.

Against that background, all 24 economists surveyed by Dow Jones Newswires had predicted no change at Thursday's meeting in Helsinki, Finland.

Meanwhile, the Bank of England raised its key rate by a quarter percentage point on Thursday to 4.25 percent amid concerns that Britain's economy is overheating during a housing boom.

Britain has not adopted the euro and therefore can make its own interest-rate decisions.

The ECB has held rates steady since a half-point cut in June, despite calls from political leaders to cut rates again to give the economy a short-term boost.

The refinancing rate determines the rate paid on central bank credits to commercial banks and serves as a benchmark for private-sector rates.

Many economists think that the bank will raises rates late this year or next year to ward off inflation as the economy expands.

The Helsinki meeting is one of two the bank holds each year away from its Frankfurt, Germany, headquarters to emphasize its role as a pan-European institution.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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