Bank Cuts Interest Rate a Day Early in Co-ordinated Move
Following the Government’s £50bn rescue plan for banks on Wednesday morning, the Bank of England cut the base rate by 0.5%, announcing the move a day early. The US Federal Reserve, the European Central Bank and other European central banks made similar moves. The Stock Market responded favourably.
In an astonishing move the Bank of England has cut the base rate by half a percent – and announced the measure a day earlier than usual.
The move by the Bank coincides with rate cuts by five other central banks, including Canada, Sweden and Switzerland. The US Federal Reserve cut its rate from 2% to 1.5% and the European Central Bank (ECB) also took half a percent off, cutting its rate from 4.25% to 3.75%. China also cut its rate, by 0.27%.
This is an unprecedented move which has the aim of steadying the tumbling global economy and plunging stock markets around the world.
The FTSE 100, which had fallen sharply initial trading, then began rising steadily after the press conference by the Prime Minister and Chancellor on Wednesday morning, rocketed on the news of the rate cut. This was evidently what the Stock market really wanted to hear. At 1pm on Wednesday the FTSE 100 was slightly higher than Tuesday’s close.
This the first time the Bank of England has cut rates in a special meeting since 18 September 2001 - when rates came down from 5% to 4.75%. The rate, now at 4.5% is at its lowest since it was 4.5% in July 2006.
Earlier on Wednesday the UK government announced plans for a £50bn rescue plan for UK banks.
The good news for mortgage borrowers was that some mortgage lenders instantly passed on the rate cut to borrowers - cutting their variable rates.
EEF, the UK manufacturers’ organisation welcomed the move, and chief economist Steve Radley hoped that, coupled with the plan to shore up the financial system the co-ordinated rate cuts would help avoid the potential slide into depression.
The Federal Reserve said it had made its 0.5% cut "in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures".
The ECB said it had felt able to act as pressures on inflation have started to moderate in a number of countries.
