The European Central Bank (ECB) is set to increase efforts to shore up the slumping eurozone economy this week, cutting interest rates to a record low of 1 per cent and embarking on further radical and aggressive measures.

A further quarter-point cut in official eurozone interest rates to 1 per cent — a level not reached since the euro's creation — is seen by economists as all but certain when the ECB's Governing Council meets on Thursday.

But markets are on alert for the ECB to go beyond this and order a series of unconventional measures as it steps up its campaign to breathe life into the moribund eurozone economy.

Pressure on the Frankfurt-based ECB to take more far-reaching steps to jump-start growth in the 16-nation bloc has escalated across Europe as the economic slump has deepened. The eurozone economy is tipped to have contracted during the first quarter by as much as 2.5 per cent — exceeding even the 1.9 per cent plunge in GDP suffered by Britain.

After a series of clear signals from members of the central bank's Governing Council, it is expected to reinforce its latest rate cut with a move to extend the time over which it offers loans to eurozone banks. The ECB has already made lending to banks available in unlimited amounts, but it is expected to declare that the funds will be available for at least 12 months, rather than the present six.

Economists also expect the ECB to follow the lead of the Bank of England and the US Federal Reserve and begin a programme of so-called quantitative easing (QE) — pumping extra funds into the economy by using newly created money to buy assets such as government or corporate bonds. This is similar to the “printing money” tactics adopted in Britain and America and would be aimed at reviving the economy by increasing the flow of cash and credit while seeking to drive down commercial, market interest rates.

Jean-Claude Trichet, the ECB's President, has made clear that the ECB is actively considering QE, noting that it is “examining all the elements” and foreshadowing “full-fledged non-standard measures”. However, it is thought that opinion within the council over the case for quantitative easing, its effectiveness and the potential risks remains sharply divided.

While details of implementation remain clouded, many economists believe that Mr Trichet and his colleagues will at least lay the groundwork for the strategy this week, even if full-scale use of it takes longer.

The ECB's expected moves come as the Bank of England's rate-setting Monetary Policy Committee (MPC) also meets this week, when it will review recent economic developments and the effectiveness of its own QE measures. The City expects that the MPC will eventually order an expansion of the Bank's initial £75 billion of asset purchases, perhaps using the full £150 billion total authorised by the Chancellor. However, most economists believe that the Bank will continue to adopt a “wait and see” stance this week, holding interest rates at their record low of 0.5per cent and continuing to monitor progress on the initial phase of its QE plan.

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