Bank Of England Rate & QE Decisions

The Bank of England has held off extending its asset purchase programme to boost money supply in the flagging UK economy further, as the world waits for the European Summit's solution to the euro crisis.

Ahead of the crucial meeting in Brussels, the Monetary Policy Committee (MPC) kept quantitative easing (QE) at £275bn and the base rate of interest at its record low of 0.5%.

The MPC moved in October to extend asset purchases beyond the £200bn previously announced as evidence mounted that the UK was edging closer to recession.

The additional £75bn is still feeding its way into the financial system but economists expect a further £100bn of additional QE before July next year.

The European Central Bank followed up last month's cut in the core eurozone interest rate by shaving another 0.25% off, taking the figure to 1%.

It's a move to help stave off the recession threat but also the risk of deflation.

The single currency rose against the dollar following the announcement.

Silvio Peruzzo, european economist at Royal Bank of Scotland said the ECB's initiative was very welcome and he forecast the rate to fall to a record low for the euro of 0.5% by the end of March next year.

He said: "There are a number of instances where lower costs of funding can certainly help...the real economy and...for the banking system by lowering costs of liquidity for the banks.

At a news conference following the decision, ECB President Mario Draghi confirmed further help for banks, to aid the wider eurozone recovery plan to be discussed in Brussels.

The QE and rate decisions by the MPC were predicted by the Sky News Money Panel.

None of the five commentators demanded more QE this month, with most expecting an extension from the £275bn announced so far early next year.

Ross Walker, chief economist at Royal Bank of Scotland said: "Additional QE purchases are likely - my forecast is for a £50bn increase in February..and there is a fairly high probability that the Bank of England continues its QE operations well into 2012."

He continued: "Much will hinge on whether financial market sentiment around the euro area debt crisis stabilises."

Asked how the euro crisis was affecting them Sir Martin Sorrell, the chief executive of advertising group WPP, said he was looking towards emerging markets for growth.

He most feared a "Black Swan event", such as the failure of a major Italian or Spanish bank - and it was his Christmas wish that economic conditions settled down in the single currency area.

Anthony Thomson, the chairman of Metro Bank, said that while his operation had no exposure to Europe, a deepening crisis would affect all UK banks through a deterioration of confidence.

Owner of Peter Popple's Popcorn, Louise George, wished for family spending to be given a boost through a relaxation of income tax - to help restore consumer confidence.

She said: "Continued suppressed confidence may start to have an effect on sales."

Which? money editor James Daley expressed similar worries for consumers over the eurozone crisis.

He called on the Government to ensure the interests of the consumer were "put at the heart" of work by new financial regulators and repeated the call by Which? to ban debit card surcharges.