Shock rate cut follows £50 billion bank bailout
Bank of England cuts interest rates
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Wednesday, 08, Oct 2008 07:57
The Bank of England has cut interest rates by half a per cent to 4.5 per cent in a shock move that appears to have been taken in conjunction with a number of other central banks around the world.
The Bank's monetary policy committee (MPC) came to the decision to cut rates following a special meeting in the early hours of this morning, several hours ahead of its normal schedule.
Following the meeting, the Bank of England, along with the Bank of Canada, the European Central Bank, the US Federal Reserve, Sveriges Riksbank, the Swiss National Bank and the Bank of Japan, released the following statement:
"Throughout the current financial crisis, central banks have engaged in continuous close consultation and have cooperated in unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets.
"Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability.
"The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.
"Some easing of global monetary conditions is therefore warranted."
As a result each of the central banks announced reductions in interest rates. The majority of them including the Federal Reserve and the ECB cutting rates by half a percentage point.
Gordon Brown announced the decision of the MPC to the House of Commons at the start of prime minister's questions calling the decision part of a "coordinated effort" by banks around the world to combat the financial crisis.
Meanwhile the Bank of England admitted that inflation was likely to rise to five per cent in the coming months. Inflation is currently running at 4.7 per cent but the Bank also said that after rising to five per cent it was likely inflation would fall back.
The stock market reacted immediately to news of the cut in interest rates bouncing up 176.17 points to 4651 between 12:00 and 12:10 BST.
The chancellor also reacted to the news by telling the House of Commons that the interest rate cut would help the government achieve its goals of maintaining stability in the economy.