ECONOMIC OUTLOOK

THE European Central Bank (ECB) extended its economic stimulus measures last week in an effort to revive the flagging eurozone economy, but the measures were not as radical as markets had expected.

It left its benchmark interest rate at 0.05%, but policymakers cut another key rate, the overnight deposit rate, to a historic low of -0.3%, from -0.2%.

The ECB pledged to extend its monthly bond buying programme by six months until March 2017, but left the door open to continuing it beyond then. It also broadened the range of assets it can buy to include local government debt.

Reducing the overnight borrowing rate means commercial banks have to pay more to put money on deposit with the ECB and the policy is intended to encourage them to lend more to businesses and consumers.

Some investors had been hoping for deeper rate cuts and an increase in monthly bond purchases. ECB President Mario Draghi said the existing stimulus programme, or quantitative easing (QE), was working but needed to be extended to tackle prolonged low inflation.

The ECB’s meeting came ahead of the Bank of England’s monthly ratesetting meeting tomorrow and the eagerly anticipated Federal Reserve’s (the Fed) meeting next week.

While the Bank of England is expected to leave its rates unchanged, markets have priced in a 76% probability of a rate rise by the Fed.

The UK’s services sector displayed unexpected strength in November with the UK services purchasing managers’ index (PMI) reaching 55.9 (over 50 denotes growth), easily beating the forecasted 55 figure and October’s 54.9 reading.

UK industrial production was also more resilient than predicted in the year to October, according to the Office for National Statistics (ONS). Output grew by 1.7% in the period, more than the 1.2% rise expected.

Yet UK retail sales were decidedly sluggish in November according to figures from the British Retail Consortium. The total value of retail sales for the month rose by just 0.7% from the same period last year.