Bank of England cuts its rate to record lows

08 January 2009

The Bank of England (BoE) has cut interest rates to 1.5 per cent, the lowest level in its history, as it continues efforts to aid an economic recovery. Interest rates have fallen 3 per cent since October 2008.

In November 2008, it cut its key lending rate by a whopping 150 basis points, bringing the official borrowing cost down by a third from from 4.5 per cent to 3.0 per cent, its sharpest cut since WWII.(See: Bank of England slashes lending rates by a third) 

The UK central bank has never cut interest rates by more than half a percentage point since it was made independent in 1997.

In a statement the Bank of England said, ''The world economy appears to be undergoing an unusually sharp and synchronised downturn. Measures of business and consumer confidence have fallen markedly. World trade growth this year is likely to be the weakest for some considerable time.''

In the United Kingdom, business surveys suggest that the pace of contraction in activity increased during the fourth quarter of 2008 and that output is likely to continue to fall sharply during the first part of this year. Surveys of retailers and reports from the Bank's regional Agents imply that consumer spending has weakened.

The outlook for business and residential investment has deteriorated. And the availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non-financial sector. But the substantial depreciation in sterling over recent months may help to moderate the impact on UK net exports of the slowdown in global growth.