Markets fall after inaction on euro

The UK is facing more economic uncertainty after the European Central Bank failed to deliver measures for tackling the region's debt crisis.

Markets fell sharply as ECB president Mario Draghi dashed hopes that he would signal an imminent move into bond markets to ease Spain's borrowing costs.

Uncertainty over the future of the euro has already deepened the UK's double-dip recession, with output down 0.7% in the second quarter of 2012.

The ECB also kept its main interest rate on hold at 0.75%, capping a week of inactivity from policymakers after the US Federal Reserve and the Bank of England opted to sit on their hands.

The Bank's monetary policy committee (MPC) is hoping that existing measures such as last month's additional £50 billion of quantitative easing and this week's launch of a "Funding for Lending" scheme will revive the economy.

The MPC, which has concluded its latest meeting under the chairmanship of Bank governor Sir Mervyn King, has also considered cutting rates below the current level of 0.5% in a move that once seemed improbable.

Hopes that the ECB would introduce new measures were stoked a week ago when Mr Draghi told an audience in London that he would do whatever it takes to save the euro. Many expected the bank at the very least to resume its bond-buying programme to keep a lid on Spain and Italy's borrowing costs.

He offered some hope by saying that the ECB stood ready to intervene in bond markets, insisting that the euro currency was irreversible, but investors had hoped for actions rather than words.

The FTSE 100 Index lost earlier gains to stand 0.5% lower at one stage, while the stock market tumbles were even more pronounced in Europe, where Germany's Dax and France's Cac-40 were down by more than 1%. The euro fell on currency markets, while Spain's borrowing costs, which had dropped in recent days, pushed back up to the 7% danger mark.

CMC Markets analyst Colin Cieszynski said: "Today's announcement appears likely to destroy any remaining hopes that the crisis can be resolved in the near term. With stock markets moving into their weakest two months of the year and no significant developments scheduled until the very end of the month, markets could spend much of August under pressure again."