Markets fall after inaction on euro

 

The UK was facing more economic uncertainty tonight after the European Central Bank failed to deliver measures for tackling the region's debt crisis.

Markets fell sharply as ECB president Mario Draghi dashed hopes that he would signal an imminent move into bond markets to ease Spain's borrowing costs.

Uncertainty over the future of the euro has already deepened the UK's double-dip recession, with output down 0.7 per cent in the second quarter of 2012.

The ECB also kept its main interest rate on hold at 0.75 per cent, capping a week of inactivity from policymakers after the US Federal Reserve and the Bank of England opted to sit on their hands.

The Bank's monetary policy committee (MPC) is hoping that existing measures such as last month's additional £50 billion of quantitative easing and this week's launch of a “Funding for Lending” scheme will revive the economy.

The MPC, which concluded its latest meeting today under the chairmanship of Bank governor Sir Mervyn King, has also considered cutting rates below the current level of 0.5 per cent in a move that once seemed improbable.

Hopes that the ECB would introduce new measures today were stoked a week ago when Mr Draghi told an audience in London that he would do whatever it takes to save the euro. Many expected the bank at the very least to resume its bond-buying programme to keep a lid on Spain and Italy's borrowing costs.

He offered some hope today by saying that the ECB stood ready to intervene in bond markets, insisting that the euro currency was irreversible, but investors had hoped for actions rather than words.

The FTSE 100 Index lost earlier gains to stand 0.5 per cent lower at one stage, while the stock market tumbles were even more pronounced in Europe, where Germany's Dax and France's Cac-40 were down by more than 1 per cent.

The euro fell on currency markets, while Spain's borrowing costs, which had dropped in recent days, pushed back up to the 7 per cent danger mark.

CMC Markets analyst Colin Cieszynski said: “Today's announcement appears likely to destroy any remaining hopes that the crisis can be resolved in the near term.

”With stock markets moving into their weakest two months of the year and no significant developments scheduled until the very end of the month, markets could spend much of August under pressure again.“

Today's inaction suggests there remains a discord between policymakers on future measures, with Mr Draghi acknowledging the Bundesbank's opposition to bond buying.

Craig Erlam, market analyst for Alpari UK, said: ”Draghi looked like a man defeated in the press conference, which came shortly after his meeting with Jens Weidmann, head of the Bundesbank. Today's conference really has shown who is king.“

Meanwhile, the Bank of England has continued to favour quantitative easing as its economic weapon of choice.

But with the economy's second-quarter decline meaning the UK is now mired in the longest double-dip recession since quarterly records began in 1955 - and possibly since the Second World War - economists think the Bank will have to take further action before the end of the year.

Anna Leach, the CBI's head of economic analysis, said: ”With the latest extension of QE launched only last month, there was no great expectation for any new announcements from the MPC today.

“The Funding for Lending scheme is now up and running which, alongside the current round of asset purchases, should provide some support to businesses.

”However, the outlook for the UK economy remains fragile, particularly in light of the disappointing official data for the first half of the year and the recent slowdown in global momentum.“

The Bank's main concern over a rate cut beyond 0.5 per cent is the impact it could have on some banks' and building societies' ability to lend.

Lenders have assets, mainly mortgages, with interest payments contractually linked to the Bank's rate and a reduction below 0.5 per cent might squeeze some lenders' interest margins to the point at which they become less able to offer new loans to customers.

In its July meeting, the Bank raised the notion that the new £80 billion ”Funding for Lending“ scheme aimed at kick-starting bank lending could lessen fears about the impact of a rate cut on the margins of lenders.

PA

News
scienceExcitement from alien hunters at 'evidence' of extraterrestrial life
Life and Style
Customers can get their caffeine fix on the move
food + drink
Sport
sport
Sport
David Moyes gets soaked
sport Moyes becomes latest manager to take part in the ALS challenge
PROMOTED VIDEO
Life and Style
techCould new invention save millions in healthcare bills?
News
peopleEnglishman managed quintessential Hollywood restaurant Chasen's
Life and Style
food + drinkHarrods launches gourmet food qualification for staff
Voices
Mosul dam was retaken with the help of the US
voicesRobert Fisk: Barack Obama is following the jihadists’ script
Arts and Entertainment
Michael Flatley prepares to bid farewell to the West End stage
danceMichael Flatley hits West End for last time alongside Team GB World champion Alice Upcott
News
Members and supporters of the lesbian, gay, bisexual, transgender (LGBT) community walk with a rainbow flag during a rally in July
i100
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Life and Style
Black Ivory Coffee is made using beans plucked from elephants' waste after ingested by the animals
food + drinkFirm says it has created the "rarest" coffee in the world
Arts and Entertainment
Loaded weapon: drugs have surprise side effects for Scarlett Johansson in Luc Besson’s ‘Lucy’
filmReview: Lucy, Luc Besson's complex thriller
Arts and Entertainment
Jamie T plays live in 2007 before going on hiatus from 2010
arts + entsSinger-songwriter will perform on the Festival Republic Stage
Life and Style
food + drinkThese simple recipes will have you refreshed within minutes
News
Jermain Defoe got loads of custard
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Business Analyst - Banking - London - £550 - £650

£550 - £650 per day: Orgtel: Business Analyst - Traded Credit Risk - Investmen...

Data Centre Engineer - Linux, Redhat, Solaris, SAN, Puppet

£55000 per annum: Harrington Starr: A financial software vendor at the forefro...

.NET Developer

£600 per day: Harrington Starr: .NET Developer C#, WPF,BLL, MSMQ, SQL, GIT, SQ...

Data Centre Engineer - Linux / Redhat / Solaris / Puppet / SAN

£65000 per annum: Harrington Starr: A financial software vendor at the forefro...

Day In a Page

All this talk of an ‘apocalyptic’ threat is simply childish

Robert Fisk: All this talk of an ‘apocalyptic’ threat is simply childish

Chuck Hagel and Martin Dempsey were pure Hollywood. They only needed Tom Cruise
French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

French connection: After 1,300 years, there’s a bridge to Mont Saint-Michel

The ugly causeway is being dismantled, an elegant connection erected in its place. So everyone’s happy, right?
Air strikes? Talk of God? Obama is following the jihadists’ script

Air strikes? Talk of God? Obama is following the jihadists’ script

The President came the nearest he has come yet to rivalling George W Bush’s gormless reaction to 9/11 , says Robert Fisk
Ebola outbreak: Billy Graham’s son declares righteous war on the virus

Billy Graham’s son declares righteous war on Ebola

A Christian charity’s efforts to save missionaries trapped in Africa by the crisis have been justifiably praised. But doubts remain about its evangelical motives
Jeremy Clarkson 'does not see a problem' with his racist language on Top Gear, says BBC

Not even Jeremy Clarkson is bigger than the BBC, says TV boss

Corporation’s head of television confirms ‘Top Gear’ host was warned about racist language
Nick Clegg the movie: Channel 4 to air Coalition drama showing Lib Dem leader's rise

Nick Clegg the movie

Channel 4 to air Coalition drama showing Lib Dem leader's rise
Philip Larkin: Misogynist, racist, miserable? Or caring, playful man who lived for others?

Philip Larkin: What will survive of him?

Larkin's reputation has taken a knocking. But a new book by James Booth argues that the poet was affectionate, witty, entertaining and kind, as hitherto unseen letters, sketches and 'selfies' reveal
Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?

Waxing lyrical

Madame Tussauds has shown off its Beyoncé waxwork in Regent's Park - but why is the tourist attraction still pulling in the crowds?
Texas forensic astronomer finally pinpoints the exact birth of impressionism

Revealed (to the minute)

The precise time when impressionism was born
From slow-roasted to sugar-cured: how to make the most of the British tomato season

Make the most of British tomatoes

The British crop is at its tastiest and most abundant. Sudi Pigott shares her favourite recipes
10 best men's skincare products

Face it: 10 best men's skincare products

Oscar Quine cleanses, tones and moisturises to find skin-savers blokes will be proud to display on the bathroom shelf
Malky Mackay allegations: Malky Mackay, Iain Moody and another grim day for English football

Mackay, Moody and another grim day for English football

The latest shocking claims do nothing to dispel the image that some in the game on these shores exist in a time warp, laments Sam Wallace
La Liga analysis: Will Barcelona's hopes go out of the window?

Will Barcelona's hopes go out of the window?

Pete Jenson starts his preview of the Spanish season, which begins on Saturday, by explaining how Fifa’s transfer ban will affect the Catalans
Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed