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<TABLE cellSpacing=0 cellPadding=0 width=452 border=0><TBODY><TR><TD vAlign=top width=452 colSpan=2>Published January 9, 2009
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>UK slashes interest rates to lowest in 315 years
Deepening recession forces central bank to reduce rates to 1.5%
By NEIL BEHRMANN
IN LONDON
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THE deepening UK recession has forced the Bank of England to slash interest rates by 0.5 percentage point to 1.5 per cent, the lowest level in its 315-year history.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Moving quickly: The Bank of England is likely to follow the US Federal Reserve and print money to boost the faltering UK economy </TD></TR></TBODY></TABLE>The rate cut, expected to be soon followed by 'quantitative easing' of the monetary supply, was widely expected by economists. It implies that the Bank of England is likely to follow the US Federal Reserve and print money to boost the economy.
With the rate cut at the lower end of expectations, the pound sterling, which had revived about 8 per cent against the euro and 5 per cent against the US dollar in recent days, rose slightly.
But the FTSE 100 index declined 82 points to 4,482, with the the rate cut and further reflationary moves having already been discounted by a stock market that has revived from recent lows.
The rate cut is aimed at encouraging banks to increase lending and pass on lower rates to corporate and individual borrowers.
The aim is also to encourage people who are working to spend, but growing numbers with savings are finding that the best investment is to reduce debt, which is charged at a much higher rate than the bank rate. Economists therefore believe that it will be a battle to encourage businesses and highly indebted consumers to borrow.
According to the Ernst & Young ITEM Club, manufacturing and services surveys in the past few days have shown that economic activity is falling sharply. Additionally, a survey by the Nationwide building society showed that house prices fell 15.9 per cent last year, and the slide is set to continue this year.
Cautious banks are demanding higher deposits on home purchases and mortgage rates remain several percentage points higher than bank rate.
In a statement accompanying the decision to cut the rate, the Bank of England's monetary policy committee said that UK business activity fell sharply during the fourth quarter of last year and is likely to continue to do so in the first part of this year.
It stressed that action was needed to increase lending to businesses and consumers.
'The outlook for business and residential investment has deteriorated,' it said. 'And the availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non-financial sector.'
The Bank of England and the government believe that besides monetary easing, fiscal expansion via tax cuts and public spending, and the considerable depreciation of the pound in recent months will be the medicine to revive the faltering UK economy.
</TD></TR></TBODY></TABLE>
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>UK slashes interest rates to lowest in 315 years
Deepening recession forces central bank to reduce rates to 1.5%
By NEIL BEHRMANN
IN LONDON
<TABLE class=storyLinks cellSpacing=4 cellPadding=1 width=136 align=right border=0><TBODY><TR class=font10><TD align=right width=20>
</TD><TD>Email this article</TD></TR><TR class=font10><TD align=right width=20></TD><TD>Print article </TD></TR><TR class=font10><TD align=right width=20></TD><TD>Feedback</TD></TR></TBODY></TABLE>THE deepening UK recession has forced the Bank of England to slash interest rates by 0.5 percentage point to 1.5 per cent, the lowest level in its 315-year history.
<TABLE class=picBoxL cellSpacing=2 width=100 align=left><TBODY><TR><TD>
</TD></TR><TR class=caption><TD>Moving quickly: The Bank of England is likely to follow the US Federal Reserve and print money to boost the faltering UK economy </TD></TR></TBODY></TABLE>The rate cut, expected to be soon followed by 'quantitative easing' of the monetary supply, was widely expected by economists. It implies that the Bank of England is likely to follow the US Federal Reserve and print money to boost the economy.With the rate cut at the lower end of expectations, the pound sterling, which had revived about 8 per cent against the euro and 5 per cent against the US dollar in recent days, rose slightly.
But the FTSE 100 index declined 82 points to 4,482, with the the rate cut and further reflationary moves having already been discounted by a stock market that has revived from recent lows.
The rate cut is aimed at encouraging banks to increase lending and pass on lower rates to corporate and individual borrowers.
The aim is also to encourage people who are working to spend, but growing numbers with savings are finding that the best investment is to reduce debt, which is charged at a much higher rate than the bank rate. Economists therefore believe that it will be a battle to encourage businesses and highly indebted consumers to borrow.
According to the Ernst & Young ITEM Club, manufacturing and services surveys in the past few days have shown that economic activity is falling sharply. Additionally, a survey by the Nationwide building society showed that house prices fell 15.9 per cent last year, and the slide is set to continue this year.
Cautious banks are demanding higher deposits on home purchases and mortgage rates remain several percentage points higher than bank rate.
In a statement accompanying the decision to cut the rate, the Bank of England's monetary policy committee said that UK business activity fell sharply during the fourth quarter of last year and is likely to continue to do so in the first part of this year.
It stressed that action was needed to increase lending to businesses and consumers.
'The outlook for business and residential investment has deteriorated,' it said. 'And the availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non-financial sector.'
The Bank of England and the government believe that besides monetary easing, fiscal expansion via tax cuts and public spending, and the considerable depreciation of the pound in recent months will be the medicine to revive the faltering UK economy.
</TD></TR></TBODY></TABLE>
