Surprise rate cut from central banks
Earlier this week the Prime Minister, Gordon Brown, and the Chancellor of the Exchequer, Alistair Darling, called a press conference where they announced that the UK’s base interest rate had been cut by 0.5% in an unprecedented move that saw central banks around the glob cutting their interest rates. The move came just one day before the Monetary Policy Committee meeting – where the interest rate movement is normally decided – was due to go ahead.
The UK’s base rate has now been cut from 5% to 4.5% in the first rate cut of this magnitude in seven years. The US Federal Reserve also cut its rate by 0.5%, taking the rate from 2% to 1.5%. The European Central Bank also cut its rate by half a percent, taking it from 4.25% to 3.75%, China cut its interest rate by 0.27%, and other countries that cut the interest rate by 0.5% included Switzerland, Sweden, and Canada.
One economist said that the move to cut interest rate would “provide at least a temporary boost to confidence”.
He did also add, however, “We fear that there is still a lot more work to do. The fact that the central banks have had to take such extreme measures underlines how bad market conditions have become.” Another official said: “Coupled with the plan to shore up the financial system today’s co-ordinated moves should help arrest the potential slide into depression.”
The US Federal Reserve said that it had made the decision to cut rates “in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures”.
Another industry official said: “It has taken far too long for the government and the Bank of England to recognise the scale of threat posed by the seizing up of the credit system.”
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