Business | Banking
BoE cuts interest rates to record low of 1.5 percent
The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent and economists expect it to cut again in February as it battles to prevent Britain from falling into a deep slump.
- Agencies
- Published: 19:25 January 8, 2009
London: The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent and economists expect it to cut again in February as it battles to prevent Britain from falling into a deep slump.
British interest rates have now fallen by 3.5 percentage points since October as policymakers caught on the hop by the severity of the downturn pull out all the stops to revive an economy facing its first recession since 1992.
In a statement accompanying its decision, the BoE said output was likely to keep falling sharply in the first half of the year, although recent tax and interest rate cuts combined with the sharp fall in sterling would give the economy a boost.
Rates in Britain never fell below 2 percent even during the Great Depression of the 1930s, underlining the scale of the current crisis hurting economies all around the world. In the United States, rates now range between 0 and 0.25 percent.
Economists said the BoE would cut again next month and interest rates could even fall below 1 percent, perhaps alongside a signal they would stay very low for a very long time. Even boosting the money supply has not been ruled out.
"They are still in cutting mode but have taken their foot off the gas this month," said Alan Clarke, UK economist at BNP Paribas.
The pound, down 15 percent against the euro since the BoE started its aggressive interest rate campaign in October, rose after the decision as many in the market had been pricing in a bigger move after the last month's 1 point reduction.
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