The European Central Bank has turned more pessimistic on eurozone growth prospects, in a sign that the bloc's 10-month interest rate freeze could continue for some time to come.

My interpretation is that we'll see a prolonged period of rates being on hold

Ross Walker, RBS Financial Markets

The ECB said in its monthly bulletin, published on Thursday, that while growth was likely to pick up in the 12-nation eurozone in the months ahead, "uncertainty as to the strength of the current recovery is high".

The Bank added that figures, to be released later this month, for growth in factory output during the April to June period would "in all likelihood" fall short of the 0.6% expansion achieved during the first three months of the year.

The ECB also appeared to play down the threat posed by inflation, saying: "Risks to price stability have become more balanced".

Growth downgrade

Separately, the European Commission on Thursday trimmed its eurozone economic growth forecast for the July to September period by one tenth of a percentage point to 0.6-0.9%.

In the spring, the ECB had been widely expected to put up interest rates during the second half of the year in order to curb inflation, which was predicted to rise in line with economic growth.

But expectations of a rate increase have receded sharply since then because of tumbling share prices and tepid economic data, with some analysts even predicting a rate cut.

Growing doubts over the health of the US economy have also dampened expectations of a recovery in Europe.

Rates steady

The ECB's latest report has been widely interpreted as a signal that the Bank plans to keep the cost of borrowing steady at 3.25% for the foreseeable future.

"I don't get the impression the ECB is considering easing monetary policy," said Ross Walker, economist at RBS Financial Markets.

"My interpretation is that we'll see a prolonged period of rates being on hold."

Like other central banks, the ECB cut interest rates aggressively last year in an effort to fend off recession as global economic growth slowed.

The most recent reduction came in November 2001.