In a surprise move, the European Central Bank cut interest rates by 0.25% to 1.25% as recent data indicates that the euro region might slide into a mild recession.

In his first press conference following the departure of former president Jean-Claude Trichet, the former Italian central bank governor and now ECB president Mario Draghi said this cut was triggered by a rise in Spanish and Italian borrowing costs.

Meanwhile the ECB is also under constant pressure to increase its commitment to buy bonds of distressed countries.

In the US, as expected, the Federal Open Markets Committee of the Federal Reserve (Fed) kept interest rates unchanged at 0 to 0.25% and also maintained its pledge to keep interest rates low through at least mid-2013 as long as unemployment remains elevated.

However, the Fed lowered its economic growth forecasts to between 1.6% and 1.7% this year (from 2.7% to 2.9% made in June) and to between 2.5% and 2.9% next year (from 3.3% to 3.7% projections made in June).

The committee also pointed to weakness in the labour market and said unemployment will average between 8.5% and 8.7% during the final quarter of next year, and increase from the previously projected range of 7.8% to 8.2%.

Meanwhile, Fed chairman Ben Bernanke said additional purchases of mortgage-backed securities are a “viable option” should the state of the economy deteriorate further, although recent payroll data is not discouraging.

Finally, the UK GDP expanded by 0.5% in the third quarter of this year as the economy came back from one-off factors that deteriorated the economic growth in the previous quarter, when the economy had registered a growth of 0.1%.

This reading was better than the 0.3% growth forecast by economists. While this provides some relief against the country’s bleak economic backdrop, the UK still faces threats in the face of Europe’s debt crisis, which is increasing the risk of the UK falling back into a recession.

In fact, the Bank of England last month increased its stimulus package for the first time in two years and is also working on a plan to boost lending.

This article was compiled by Bank of Valletta plc for general information purposes only.