Europe, UK central banks cut key rates as recession looms

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(Xinhua/Agencies)
Updated: 2008-11-06 21:01

European and British central banks cut interest rates on Thursday on the increasing concern about economic conditions throughout the world.

The European Central Bank (ECB) cut its key interest rate by 50 basis points to 3.25 percent to fight possible economic recession in the future.

"The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period," said ECB President Jean-Claude Trich.

"When analyzing current developments in economy activities we face an extraordinarily high degree of uncertainty," he said, "it is therefore crucial that all parties, including public authorities, price-setters and social partners, fully live up to their responsibilities."

"In such an environment, taking into account the strong fall in commodity prices over recent months, price, cost and wage pressures in the euro area should also moderate," said Trich.

Two days ago, the European Commission said, the euro region's economy is probably already in a recession and will stagnate in 2009.

Besides the ECB, the Bank of England slashed borrowing costs on Thursday by 150 basis points to soften the blow of a sharp economic downturn.

The cut took interest rates to 3.0 percent.

Most economists polled by Reuters had forecast a half-point cut although several had changed their forecasts following a series of gloomy data. Ten out of 62 analysts predicted a full percentage point cut.

Britain's central bank has never cut interest rates by more than half a point since it was made independent in 1997. The last time rates were slashed by a percentage point was in 1993, when the country was struggling to emerge from a recession.

Pain which the year-long credit crunch has inflicted on the economy is becoming more apparent as house prices tumble and job losses mount.

Britain's economy shrank 0.5 percent in the third quarter and many experts do not expect a recovery until 2010.

Thursday's rate cut is unlikely to prevent the economy slipping into the recession but will provide a boost to consumer morale and relief to homeowners with tracker mortgages.