European interest rates were firmly on hold yesterday after the global credit squeeze appeared to have left the European Central Bank all but dropping plans for a rise, while the Bank of England also left its main rate unchanged.

Speaking after the ECB left its main interest rate at 4 per cent at a meeting in Vienna, bank president Jean-Claude Trichet went further than before in stressing the downside risks to growth in the eurozone.

Although the ECB would not let up in the battle against inflation, significant changes in the wording of Mr Trichet's statement hinted strongly that the bank saw little case for further rises in borrowing costs.

Meanwhile, for the first time since November 2005, he failed to describe monetary conditions as "accommodative" - a phrase that has indicated the ECB saw the level of interest rates as boosting growth and offering scope for further rises.

The Bank of England left interest rates on hold at 5.75 per cent, opting to take more time to assess the implications of the credit squeeze for growth and inflation prospects. The bank's decision to stay its hand had been widely anticipated, as had that of the ECB.

Economists increasingly believe UK and eurozone interest rates have now peaked, after a series of tightening moves in the past year. The chances of an early cut in the UK are growing, analysts added.

Financial markets have also started talking about eurozone borrowing costs falling sometime next year but Holger Schmieding, economist at Bank of America, said: "It would probably take a dramatic, protracted and wholly unexpected downturn in the economic data to trigger any rate cut discussion in Frankfurt."

The ECB's task has been complicated because inflation in the 13-country region has started to rise and is expected to remain above its target of an annual rate "below but close" to 2 per cent well into next year. But economic data also pointed to a slowdown in growth, almost certainly exacerbated by the global credit squeeze and a stronger euro.