GLOBAL ECONOMY-UK holds rates, China exports & Europe struggle

(New throughout)

By Mike Peacock

LONDON, July 10 (Reuters) - The Bank of England left interest rates on hold despite spiralling inflation as slowing Chinese exports growth and faltering European industry provided further evidence on Thursday that global growth is teetering.

Inflation, fuelled by the sky-high price of oil and other commodities, has spread its tentacles into almost every corner of the world at the same time as economies weaken.

Despite inflation overshooting the UK's two percent target by a distance, its central bank kept official rates at 5.0 percent, suggesting it expects economic doldrums to rein in prices sooner or later. [ID:L10010239]

Even in Japan, which has battled deflation for years, data showed wholesale prices last month jumped to the highest in 27 years, spelling steeper costs for businesses although they have struggled to pass them on to consumers. [ID:nT2165]

At the same time, U.S. and European growth has been slowing rapidly, with many experts now forecasting technical recessions -- two successive quarters of negative growth -- at least.

French industrial production fell 2.6 percent on a monthly basis in May, the national statistics office said on Thursday, much more than forecasts for a 0.5 percent drop. [ID:nL1034617]

Similarly, Italian industrial output was much weaker than expected in May, posting the largest monthly drop since September last year, down 1.4 percent on the month.

"Now we are starting to ask ourselves questions more broadly about the euro zone, that is to say we have the impression that the economy is sliding into recession," said Olivier Gasnier, an economist at Societe Generale.

Those gloomy reports followed a 2.4 percent plunge in German industrial output for May, which also took markets by surprise.

"We will have a bad second quarter," German Finance Minister Peer Steinbrueck told reporters in Berlin.

The trade surplus in China, the world's fourth-largest economy which has grown at a heady pace, hit $21.35 billion in June, up from $20.21 billion, but the annual pace of exports was slower than expected at 17.6 percent. [ID:nPEK71486]

"Despite the higher trade surplus, the impact of slowing global demand is evident," BNP Paribas said in a client note.

Chinese exporters have said they are facing their toughest year in memory because of the combination of rising domestic costs and softer global demand.