Tim Wallace
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CENTRAL banks desperately tried to push the world economy out of its downward spiral yesterday, with the Bank of England turning on the printing presses yet again, and the European Central Bank (ECB) and the People’s Bank of China (PBoC) cutting interest rates further.

Denmark’s central bank even cut one key interest rate to minus 0.2 per cent.

But markets were unconvinced, falling across much of the globe, and economists doubted whether the loosening would have a significant impact on economic growth.

The Bank of England announced another £50bn of quantitative easing (QE) to try to combat “continuing tight credit conditions” and “the increased drag from the heightened tensions within the Eurozone,” taking the total printed so far to £375bn.

In a very downbeat note, the Monetary Policy Committee (MPC) warned that “UK output has barely grown for a year and a half and is estimated to have fallen in both of the past two quarters,” and is unlikely to start growing soon because of slowing growth in key export markets and falling business confidence.

The extra QE comes after governor Sir Mervyn King announced an emergency lending scheme with the Treasury to give cheap loans to firms and households, in another last-ditch push to get credit flowing.

But analysts warned so much money had been printed already that the extra £50bn will be less and less effective.

“It may well be that further easing will be required,” said BNP Paribas’ David Tinsley.

“But this could come through the ‘funding for lending’ scheme if it is being effective, rather than gilt purchases, where with yields already so low diminishing marginal returns may be setting in.”

ECB boss Mario Draghi cut the base rate by 25 basis points (bp) to 0.75 per cent, as he expects the economy to start contracting again.

“Indicators point to a renewed weakening of economic growth and heightened uncertainty,” he said. “The risks surrounding the economic outlook relate to a renewed increase in the tensions in several Eurozone financial markets and their potential spillover to the euro area real economy.”

The ECB also cut the rate on its deposit facility by 25bp to zero.

Both central banks hope inflation has dropped back far enough to allow the looser policies to take effect without breeching the rules – the Bank of England has a terrible recent record of predicting inflation, yet seems confident that falling commodities prices, low pay growth and slack in the economy will keep inflation falling towards the two per cent target.

Meanwhile China’s central bank cut interest rates for the second time in a matter of weeks, chopping the benchmark one-year lending rate by 31 basis points to six per cent and loosening banks’ lending constraints.

But markets were unimpressed by the efforts to stop the slowdown.

The Euro Stoxx 50 fell 1.19 per cent, the French CAC40 dropped 1.17 per cent; the FTSE 100 was barely changed, rising just 0.14 per cent. Japan’s Nikkei fell 0.27 per cent and Hong King’s Hang Seng rose 0.5 per cent.