Quarter point cut in bank rate to head-off economic slowdown

10 04 2008 United Kingdom

After a modest cut to 5.25 per cent in February, the Bank of England has given way to pressures and reduced bank rate to 5 per cent.

Continuing weaknesses in the UK economy have persuaded the Bank’s Monetary Policy Committee (MPC) to reduce the official bank rate by a quarter percentage point.

The drop in house prices, falls in sterling on exchange markets, a surge in oil prices and the IMF’s forecast of lower growth had led to calls for a half percent cut in UK bank rate.

In a statement issued by the Bank of England, the MPC said that there were still risks of inflation remaining above the 2 per cent target this year. On the other hand, ‘the disruption in financial markets could lead to a slowdown in the economy that was sufficiently sharp to pull inflation below the target.’

Yesterday the IMF warned that the UK’s economic growth rate will slow down this year to 1.6 per cent, from 3.1 per cent in last year. This presents a picture not seen since the recession of 1992.

The FTSE index fell 1 per cent to 5,926.2. Sterling fell to a record low of 80.29 pence against the Euro and closed at 1.9800 against the dollar.

The previous change in Bank Rate was a reduction of 0.25 percentage points to 5.25 per cent on 7 February 2008.

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