The Bank of England's bigger-than-expected policy-easing move last week adds pressure to the European Central Bank (ECB) to take further stimulating action, economists have said.
In the wake of the U.K.'s destabilizing vote to leave the European Union in June, the Bank of England cut interest rates for the first time in over seven years on Thursday. The bank also announced a £70 billion ($78 billion) hike to its quantitative easing program and a new Term Funding Scheme worth up to £100 billion to provide cheap funding to lenders.
Eyes will next be on the ECB, whose Governing Council meets on September 8, to see if it too will ease policy to diminish the negative impact from the Brexit vote on the euro zone.
"The Bank of England's policy action last week added to the pressure on the ECB to do more," economists led by Roger Bootle at Capital Economics said in a weekly report on Monday.
"At the moment, the ECB's self-imposed restrictions would prevent a large expansion of its asset-purchase program. But those limitations can be amended, so should not prevent the ECB from announcing an increase in the pace of its asset purchases in September," they added.
The ECB launched its asset-buying program in January 2015 and has already hiked the size of its monthly purchases to 80 billion euros from 60 billion euros and delayed the earliest end-date by six months to March 2017. It made no policy changes after the Governing Council met in July, however.
"With the economic consequences of the U.K.'s vote starting to take shape, the rise in euroskepticism underscores the role that upcoming political events could play in determining economic outcomes across the rest of Europe," Capital Economics said in its report.
An early indicator of the euro zone economy following the Brexit vote suggested resilience. The final reading of Markit 's composite Purchasing Managers' Index (PMI) for the euro zone read 53.1, up from 52.9 in June and well above the 50-point level that demarcates economic expansion.
The Bank of England's Term Funding Scheme bears some similarities with the ECB's Targeted Longer-term refinancing operations (TLTROs). Banks will be able to borrow up to 5 percent of their outstanding lending for a term of four years.
However, Bank of England Governor Mark Carney has indicated the bank will not introduce negative interest rates, setting itself apart from the ECB, Swiss National Bank and Bank of Japan, which have all done so.