ECB, Bank of England hold interest rates

A view of the European Central Bank in Frankfurt. The bank kept interest rates unchanged.

LONDON (CNNMoney) -- Europe's leading central banks kept interest rates unchanged Thursday despite a worsening near-term outlook for the region's economy.

The European Central Bank held its main interest rate at 0.75%, while the Bank of England kept rates at 0.5% and said it would not be adding to its £375 billion program of quantitative easing.

On Wednesday, the European Commission slashed its forecast for eurozone growth in 2013 to 0.1% from 1.0%. ECB President Mario Draghi said overall activity in the region would remain weak in the near-term and inflation was well contained.

Growth in Germany -- Europe's biggest economy -- will fall to 0.8% in 2012 from 3% last year and maintain that subdued rate of expansion next year, according to the commission's forecasts.

"Germany has so far been largely insulated from some of the difficulties elsewhere in the euro area. But the latest data suggest that these developments are now starting to affect the German economy," Draghi said Wednesday.

Related: Germany economy shows signs of slowing

The ECB has steadied investors' nerves about the eurozone crisis with its plan to buy the bonds of heavily-indebted governments such as Italy and Spain, provided they apply for a formal bailout program.

The bank's Outright Monetary Transactions program, as the bond purchase scheme is known, has driven down yields on Italian and Spanish bonds, without it yet being activated, encouraging Madrid to hold off making a request for assistance.

Some economists believe both the ECB and the Bank of England will have little choice but to pump more money into the European economy early next year.

"We still expect real GDP to disappoint and for this to drive the [Bank of England] to deliver £50 billion of quantitative easing in February," said Philip Rush, UK economist at Nomura.

Related: European leaders: Let's get world economy moving

The British economy emerged from recession with stronger than expected growth in the third quarter, helped by one-off factors such as the London Olympic Games, but recent data have painted a less optimistic picture and the external environment is deteriorating.

"While the newsflow on Eurozone firewalls, ECB action and bailouts has been encouraging, the dataflow from the region has been weak. Then there is the fiscal cliff in the US," said James Knightley, economist at ING.

"The longer it takes to reach an agreement on preventing a recession-inducing wave of austerity, the more damaging it will be for confidence, risk appetite and growth both in the US and globally. This is why we don't believe the Bank of England is finished with its stimulus efforts."

First Published: November 8, 2012: 8:38 AM ET

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