An image of the planned new headquarters of the European Central Bank in Frankfurt. The 45-floor twisted double-tower building should be finished in the autumn of 2013, with full occupancy expected by mid-2014. The bank had originally planned to occupy its new premises by the end of 2011. The construction budget is €500 million.

The European Central Bank (ECB) as expected kept its benchmark interest rate on hold at 1.0%, at a meeting of the governing council in Frankfurt, today. The ECB president, Jean-Claude Trichet, will address a press conference and he is expected to be questioned on the economic woes of Eurozone member Greece. The Bank of England kept its key rate at 0.5% - - the lowest since 1694.

In the Eurozone, economic recovery remains fragile. On Wednesday, it was reported by Eurostat, the EU's statistics office, that retail sales were flat in December, while the Markit Eurozone Composite Output Index - - reflecting a poll of a panel of around 4,500 manufacturing and services firms, by Markit Economics - - posted 53.7 in January, down slightly from December’s 26-month high of 54.2. The headline index has signalled an increase in private sector activity in each of the past six months but Markit said the recovery remained more firmly rooted in the manufacturing sector at the start of 2010. Growth of manufacturing production increased for the sixth successive month and at the fastest pace for almost two-and-a-half years. Although service sector business activity continued to expand, growth was more moderate than that signalled for manufacturing and weaker than in the previous month.

The economy of the 16 member country Eurozone will grow 0.8% this year and 1.2% in 2011, according to the ECB’s December staff forecasts. It shrank 4% last year, according to European Commission estimates.

In London, the Bank of England’s Monetary Policy Committee today agreed to maintain its benchmark rate at 0.5%. The MPC also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

The Bank said after a substantial fall in output, the UK economy recorded sluggish growth in the final quarter of 2009.  Spending by households appears to have picked up a little, though that may partly reflect temporary factors.  The rate of decline in businesses’ investment spending appears to have eased.  And the world economy continued to recover, raising the demand for UK exports.

CPI inflation has risen sharply to well above the 2% target, reaching 2.9% in December.  That rise was largely accounted for by higher petrol price inflation and the reduction in the main VAT rate a year earlier dropping out of the calculation.  Inflation is likely to have risen further in January, reflecting the restoration of the VAT rate to 17.5%.  Pay growth has remained subdued.

The BoE said considerable stimulus from the easing in monetary policy, the lower level of sterling and the recovery in UK export markets should together support domestic activity.  But credit conditions are likely to remain restrictive, while the need to strengthen public and private sector finances will also weigh on spending.  On balance, the MPC believes that the prospect is for a gradual recovery in the level of activity.  The recession has probably impaired the supply capacity of the economy, but the scale and persistence of the fall in output means that a substantial margin of under-utilised resources is likely to remain for some time to come.  That is likely to mean that inflation will fall below the target for a period.

In the light of the MPC's latest Inflation Report projections and in order to keep inflation on track to meet the 2% inflation target over the medium term, it judged that it was appropriate to maintain the key rate at 0.5% and its stock of purchases of government and corporate debt financed by the issuance of central bank reserves at £200 billion.  The Committee noted that this stock of past purchases, together with the low level of bank rate, would continue to impart a substantial monetary stimulus to the economy for some time to come.  

The MPC's latest inflation and output projections will appear in the Inflation Report to be published at 10.30am on Wednesday February 10th.

The minutes of the meeting will be published at 9.30am on Wednesday February 17th.