By William L. Watts, MarketWatch LONDON (MarketWatch) -- The Bank of England's Monetary Policy Committee caught financial markets by surprise Thursday, announcing it would add 50 billion pounds ($84 billion) to its asset-purchase program Ahead of the announcement, observers had been split over whether the nine-member panel would choose to expand on the 125 billion pounds in asset purchases it has already made or to put the program on hiatus as it awaited more data amid signs the worst of what's likely to prove to be a historic recession has passed. Yields on 10-year British government bonds, or gilts, slipped. The British pound, which had trimmed earlier losses to trade around $1.6983 versus the dollar just ahead of the announcement, fell to $1.6858. The euro rose to 85.33 pence versus the pound, up from 84.67 pence ahead of the decision. Many of those looking for an expansion of the program had expected a more modest increase of 25 billion pounds. There was no surprise on interest rates, however. As expected, the committee left its key lending rate unchanged at a record low of 0.5%, where it has stayed since the central bank kicked off its asset-purchase program, widely known as quantitative easing. The strategy, similar to a program employed by the U.S. Federal Reserve, centers on electronically creating new money that is used to purchase U.K. government bonds, known as gilts, and high-quality corporate debt. The program aims to hold down market interest rates, boost nominal spending and, ultimately, prevent a deflationary spiral. The Frankfurt-based European Central Bank is expected to stand pat when its Governing Council concludes its monthly policy meeting later Thursday. The ECB, which conducts monetary policy for the 16-nation euro zone, is expected to leave its key rate unchanged at a record low of 1%. As part of its own extraordinary efforts to keep credit flowing in the euro zone, the ECB last month implemented a plan to buy 60 billion euros ($83.2 billion) worth of covered bonds. The instruments, which are popular in Europe, are issued by banks primarily to refinance loans on commercial or residential mortgages, or loans to the public sector. The ECB will announce the outcome of the meeting at 7:45 a.m. Eastern. ECB President Jean-Claude Trichet's monthly news conference is scheduled to begin at 8:30 a.m. Eastern. A flurry Wednesday of positive data bolstered expectations the British economy, which has been ravaged by a deep recession, could return to growth by the end of the year, economists said. That had also helped to strengthen somewhat ideas the MPC would choose to hit the pause button on the quantitative-easing program. The data included a rise in the July CIPS/Markit services purchasing managers index to a 17-month high, further evidence that the ravaged British housing market has started to stabilize, and an unexpected monthly upturn in June industrial production. See full story. But it's too early to say for certain the British economy is headed for full-fledged recovery, economists cautioned. U.K. recovery hopes were dealt a blow when the Office for National Statistics reported last month that gross domestic product contracted by a steeper-than-expected 0.8% in the second quarter. While slowing from a 2.4% quarterly fall in the first quarter and a 1.8% decline in the final three months of 2008, it was still a substantial drop that suggests recovery prospects are being built on a rocker base than previously thought, said Howard Archer, chief U.K. and European economist at IHS Global Insight, in a research note late last week. Moreover, the second-quarter contraction and downward revisions to earlier data mean GDP fell 5.6% year-on-year in the second quarter, rather than the 4.7% contraction projected by the Bank of England in its May inflation report, he said. MPC members, meanwhile, had access to the bank's latest quarterly inflation report during the meeting. The report will be released to the public next week. Consumer price inflation fell to an annual rate of 1.8% in June from 2.2% in May, marking the first move below the bank's 2% target rate since September 2007.

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