Bank cuts interest rates
The Bank of England will announce its decision at noon
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Thursday, 06, Dec 2007 11:21
The Bank of England has voted for a quarter-point cut in the UK's benchmark interest rate.
Analysts had previously said the interest rate decision was too close to call, with monetary policymakers caught between the need to control inflation and recent signs of an economic slowdown.
But in a statement accompanying the announcement of its decision to cut the cost of borrowing, the Bank indicated concerns about the current health of the economy had outweighed inflation fears.
"Although output in the United Kingdom has expanded at a brisk pace for the past two years, there are now signs that growth has begun to slow," the central bank said.
"Conditions in financial markets have deteriorated and a tightening in the supply of credit to households and businesses is in train, posing downside risks to the outlook for both output and inflation further ahead," added the statement, which indicated recent forward-looking surveys of households and businesses suggested spending was slowing.
But the Bank stressed "upside risks" to inflation remained and said its monetary policy committee (MPC) would continue to monitor the situation carefully.
Today's vote by the MPC brings the UK's official interest rate down from 5.75 per cent to 5.5 per cent.
The cut in the cost of borrowing is the first implemented by committee members since August 2005, with interest rates having been on hold since July this year following a series of increases.
Action by the MPC comes after two surveys released yesterday revealed a sharp slump in consumer confidence and further evidence of an apparent downturn in the housing market.
Consumer confidence fell at the fastest rate in more than three years in November, according to yesterday's data from Nationwide.
Meanwhile rival lender Halifax reported a third consecutive monthly drop in house prices for last month.
The rate cut also comes amid growing fears the ongoing global credit crunch could begin to impact on the UK's economy. An official from the Financial Services Authority (FSA) warned mortgage lenders earlier this week to prepare for the prospect of the credit squeeze getting worse and stressed tougher financial conditions could increase the number of people defaulting on home-loan payments.
Following the decision on UK interest rates, US president George W Bush confirmed that some American sub-prime lending rates would be frozen in an effort to combat the ongoing credit crunch.