ECB Holds Rates After BOE Cuts. Why Growth, Inflation, Jobs Divide the EU and U.K.

The Bank of England is widely expected to cut interest rates on Thursday. (Dan Kitwood/Getty Images)

The European Central Bank and several of its peers held borrowing costs steady Thursday while the Bank of England cut interest rates as the U.K. negotiates a different set of economic pressures from the EU.

The BOE lowered rates by a quarter of a point to 3.75%. Its monetary policy committee voted by a majority of 5-4 in favor of a cut.

Just an hour and 15 minutes later, the ECB kept rates at 2%, the fourth meeting in a row that Frankfurt has left them unchanged.

Economic growth in the euro zone looks resilient, and inflation is close to policymakers’ 2% target. That’s a luxury the BOE doesn’t have, as the U.K.’s unemployment rate rose to 5.1% over the three months ended in October.

The BOE committee noted that inflation had fallen to 3.2% since its last meeting in early November, when policymakers voted 5-4 in favor of holding rates steady. It said that further easing would depend on how the outlook for inflation evolves.

Economists expect prices to cool further over the next few months because the government opted to raise some taxes in its November budget.

The British pound ticked up 0.1% against the dollar on Thursday, trading at just under $1.34. The yield on the 10-year gilt climbed 3 basis points to 4.52%.

Sweden’s Riksbank and Norway’s Norges Bank kept rates unchanged on Thursday. Traders are expecting the Czech National Bank to also hold borrowing costs at their current level.

The economic unease hasn’t had much of an impact on U.K. stocks this year. London’s FTSE 100 is up 20%, outperforming the S&P 500. Government bond yields have been rising, though, amid concerns about a fiscal hole that the ruling Labour Party is struggling to fill.

In Asia, there is another consequential rate decision this week. The Bank of Japan is widely expected to hike rates, which could have a knock-on effect if it unravels the so-called carry trade—in which investors borrow Japanese yen as a cheap, low-risk source of cash, then invest it in higher-yielding U.S. treasuries or other assets.

Write to George Glover at george.glover@dowjones.com