 BOE slashes rate to '55 level
(China Daily)
Updated: 2008-11-07 07:59 The Bank of England unexpectedly cut the benchmark interest rate by 1.5 percentage points to the lowest since 1955 as policy-makers tried to limit damage caused by the worst banking crisis in almost a century. The nine-member Monetary Policy Committee, led by Governor Mervyn King, reduced the bank rate to 3 percent, the biggest decline in more than a decade. None of the 60 economists surveyed by Bloomberg News predicted the move. "It's absolutely staggering and deeply impressive," said Brian Hilliard, director of economic research at Societe Generale in London. "They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact." The seizure in credit markets has left Britain on the edge of its first recession since 1991, prompting a 50 billion-pound bank rescue package from the government and a half-point emergency rate cut on Oct 8. With the economy headed into recession, the danger is that inflation will slow more than policy makers want. "The risks to inflation have shifted decisively to the downside," the Monetary Policy Committee said in a statement. Policy makers "judged that a significant reduction in Bank Rate was necessary now in order to meet the 2 percent target" for inflation. The pound dropped immediately after the decision before rebounding. It traded at $1.6011 at 12:30 pm in London compared with $1.5898 before the decision. Global policy-makers are escalating their response to the global credit crunch after a coordinated round of global cuts last month. The European Central Bank yesterday reduced its benchmark rate by 50 basis points and the Swiss central bank unexpectedly trimmed its main lending rate by 50 basis points. The Federal Reserve last month lowered its main rate to 1 percent, matching the lowest in a half century. The Bank of England is working with the government to limit the fallout from what it calls the worst global banking crisis in almost a century. Prime Minister Gordon Brown was forced last month to broker a takeover of HBOS Plc and Bank of England figures show financial institutions in the US and Europe have already suffered $2.8 trillion in securities losses from the crisis. "They're admitting that this recession is going to be very painful and have a huge impact on inflation," said George Buckley, an economist at Deutsche Bank AG in London. "This is obviously a lot of help but it remains to be seen how much gets passed through." Shares of Tomkins Plc fell the most in 16 years yesterday after the UK maker of auto parts and building materials said markets have worsened "considerably" since the end of June. Bovis Homes Group Plc, the UK's most profitable homebuilder, said today falling prices are hurting margins. Manufacturing is in its longest contraction since 1980, while UK house prices fell an annual 14.9 percent in October, the most in at least 25 years, HBOS Plc said yesterday. Agencies (China Daily 11/07/2008 page17) |
