BoE slashes interest rates to 57-year lowThe Bank of England Bank of England, central bank and note-issuing institution of Great Britain. Popularly known as the Old Lady of Threadneedle Street, its main office stands on the street of that name in London. on Thursday slashed its key interest rate by a full percentage point to 2.0 percent, the lowest level in more than half a century amid mounting evidence Britain faces a deep recession.
The December rate cut follows a record 1.50 percent reduction in November, a dramatic effort to slow an accelerating slide into an economic slowdown that has been compared to the 1930s Great Depression.
The move prompted some economists to forecast that British interest rates could drop close to zero in 2009. Rates were last at 2.0 percent in the years 1939-51, held there during World War II and into the recovery period afterwards.
"In the United Kingdom, business surveys have weakened further and suggest that the downturn has gathered pace," the Bank of England (BoE) said in a statement following a two-day meeting of its monetary policy committee (MPC (1) (Mobile PC) A handheld or laptop computer. See handheld computer, laptop computer and Ultra-Mobile PC.
(2) (MultiPath Channel) See multipath. ).
The Council of Mortgage lenders The Council of Mortgage Lenders is an industry body representing mortgage lenders in the United Kingdom.
Its members consist of banks, building societies and specialist lenders and represent 98% of mortgage lending in the UK. welcomed the decision although it said the cut would not be passed on to all home owners.
"This will help the wider economy, even if it cannot be reflected universally in lower mortgage rates. Where lenders feel they can reduce mortgage rates, they will," it said in a statement.
The BoE rate call came shortly ahead of a move by the European Central Bank European Central Bank (ECB)
Bank created to monitor the monetary policy of the countries that have converted to the Euro from their local currencies. The original 11 countries are: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Portugal, to cut its key lending rate by 0.75 percentage points to 2.50 percent for the 15-nation eurozone Eurozone
same as Euroland
Eurozone n → eurozona, zona euro
Eurozone n → zona euro which is already mired mire
1. An area of wet, soggy, muddy ground; a bog.
2. Deep slimy soil or mud.
3. A disadvantageous or difficult condition or situation: the mire of poverty.
v. in recession.
The pound recovered after the bank's decision, having hit a record low against the euro in morning trade on anticipation of a steep BoE rate reduction.
Central banks This is a list of central banks.
Contents A B C D E F G H I J K L M N O P Q R S T U V W Y Z around the world have been slashing interest rates as the impact of the global financial crisis puts the brakes on economic growth, with Australia, New Zealand New Zealand (zē`lənd), island country (2005 est. pop. 4,035,000), 104,454 sq mi (270,534 sq km), in the S Pacific Ocean, over 1,000 mi (1,600 km) SE of Australia. The capital is Wellington; the largest city and leading port is Auckland. and Thailand acting earlier this week.
The BoE said that consumer price inflation was forecast to fall even further in the coming months, in line with sharp falls for energy and food costs, allowing greater room for manoeuvre.
"Inflation is likely to continue to drop back as the contributions from retail energy and food prices decline," said the BoE, whose chief task is to keep 12-month inflation close to a 2.0 percent target.
The consumer price index came off a 16-year high of 5.2 percent in September to 4.5 percent in October as the cost of oil fell sharply, raising some concerns the country risked equally damaging deflation -- a prolonged period of falling prices.
"At its December meeting, the (Monetary Policy) Committee judged that ... there remained a substantial risk of undershooting the 2.0 percent CPI (1) (Characters Per Inch) The measurement of the density of characters per inch on tape or paper. A printer's CPI button switches character pitch.
(2) (Counts Per I inflation target in the medium term," the BoE said.
"Accordingly, the Committee determined that a further reduction ... of 1.0 percentage points to 2.0 percent was necessary in order to meet the target in the medium term."
Investec Securities economist Philip Shaw said the BoE could slash borrowing costs near to zero percent as it seeks to kick-start the economy next year.
"We are of the view that the MPC will bring rates down close to zero by the spring to maximise the amount of stimulus from interest rate policy and to provide banks with cheap and plentiful central bank liquidity," Shaw said.
"We are working on an assumption that the minimum feasible level of official rates lies somewhere between 0.50-0.75 percent, and that the Bank rate reaches 0.75 percent in the second quarter."
The BoE's November 1.5 percentage point rate cut was the biggest since 1981, shocking markets around the world.
Since last month's decision, however, official data has confirmed that the economy shrank 0.5 percent in the three months to September. A second consecutive quarterly contraction would put Britain in recession.
Mark Priest Mark Wellings Priest (born August 12, 1961, Greymouth, West Coast, New Zealand) is a former New Zealand cricketer who played in 3 Tests and 18 ODIs from 1990 to 1998. , senior trader at spread betting Spread betting is any of various types of wagering on the outcome of an event, where the pay-off is based on the accuracy of the wager, rather than a simple "win or lose" outcome. company ETX ETX - End Of Text Capital, said that the BoE's December cut would help prevent more economic pain.
"This is just what the doctor ordered -- an aggressive cut to head off a worsening downturn," Priest said.
Ahead of Thursday's rate decision, a raft of bad economic data hit investors' trading screens.
The pound fell under 1.15 euros for the first time and home loan provideer Halifax said house prices slumped by a record 14.9 percent in the three months to November.
It was also announced that sales of new cars in Britain plunged at the fastest rate -- 36.8 percent -- for more than 28 years in November.
Last week, the government launched an economic stimulus package of 20 billion pounds in a bid to spark fresh consumer spending and fight back against the downturn.