Thursday, 6th November 2008 - 13:45CET
Britain slashes interest rates, ECB cuts its rate by 0.5%
Britain slashed borrowing costs by a record 1.5 percentage points today while the European Central Bank followed with a 0.5% cut.
The Bank of England, faced with a slumping housing market, steep decline in manufacturing and increased unemployment, cut its interest rate to three percent, citing a marked deterioration in the economic outlook.
The cut far exceeded general market expectations and underlined the gravity with which economic leaders view a crisis that began with a slump in the U.S housing market and has now enveloped the world economy. It was the biggest reduction since the Bank was given independence to set rates 11 years ago.
Heavy U.S. job losses, a sharp decline in the world services sector and bleak company outlooks painted an increasingly dark picture this week.
Matthew Sharratt, UK economist at Bank of America, echoed widespread sentiment in calling the cut 'astonishing'. Jonathan Loynes of Capital Economics called it a spectacular move.
Last month, the Bank of England joined forces with the U.S. Federal Reserve and European Central Bank to make an emergency half-point cut in interest rates. Politicians in the 15-country euro zone hope a rate cut from the ECB, possibly half a point, will help stave off recession and limit unemployment.
Shortly after the Bank of England decision, the ECB said it was cutting its own rate by 0.5% to 3.25%.
Rate cuts, however, may be less effective than in the past. Banks infected by a collapse of confidence within the financial system are still wary of extending loans and are reluctant to pass cuts on to borrowers. But the sheer scale of today's cuts, especially in the UK, will put pressure on banks to conform and back smaller businesses, some facing bankruptcy.
The Swiss national bank cut its rates by 50 basis points. Markets looked to U.S. President-elect Barack Obama to name key members of an economic team that must tackle a crisis that originated in the U.S. housing market 15 months ago before enveloping the banking system and threatening the very foundations of the global market economy.
U.S. crude oil lost 2 percent to $63.96 a barrel, against a record high above $147 set in July. The fall, reflecting expectations a global recession, will reduce inflationary pressure on national economies and ease rate cuts.
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Comments
But this is what started it all, the financial mess we are in - CHEAP CREDIT and given to people who shouldn't have got it in the first place. I don't see any sense in bring the interest rates down by a 100pt of a one percent?
There is no liquidity even banks are not lending to other banks.
Governments are lowering interest rate just to prevent a longer and deeper recession.
PS what good does it do to have low interest rates if you loose your job? No bank is going to lend you money.
The banks will look after number one - themselves, they won't pass much or any of this saving onto those who have loans; and even if they do so the same problem will eventually occur again; cheap money tempting people to borrow irresponsibly untill a circumstance changes and they are unable to service the loan.
The real crime is the record profits which RBS in particular were making a few years back...where has that profit all gone? Greedy shareholders constantly demanding more and more dividend. The government STILL has not changed any regulations; profit caps, code of conduct for lending criteria, serious background checks and ensuring that the banks have the neccesary collatoral themselves to back up any loans they give are some hard decisions which need to be implimented if anything is going to change.
The interest rate cut will cause imported inflation for fuels/petrol/gas and imported fuels, so those lucky enough to have taken out a tracker rate mortgage in the last few years will be the very few to benefit.
lastly, unemployment is going up and will snowball 2009
NO wonder Gordon Brown was lobbying Mid east countries to give more mone to IMF, because Gordon Brown will need to go to the IMF soon.
UK Economy = Slow motion Train wreck
Historically rates in the UK have been higher then those in the Euro zone, USA, Canada and Japan, In short, UK rates have been the highest among the G8 Group.