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| UK interest rates slashed to 3% | UK interest rates slashed to 3% |
| (21 minutes later) | |
| The Bank of England has cut interest rates in the UK by one-and-a-half percentage points to 3%, its lowest since 1955, in a shock move. | The Bank of England has cut interest rates in the UK by one-and-a-half percentage points to 3%, its lowest since 1955, in a shock move. |
| Last month it cut rates from 5% to 4.5% in an emergency move co-ordinated with other central banks. | Last month it cut rates from 5% to 4.5% in an emergency move co-ordinated with other central banks. |
| There had been widespread calls from industry for a major cut as the country begins to face up to the prospect of a deep recession. | There had been widespread calls from industry for a major cut as the country begins to face up to the prospect of a deep recession. |
| It is the most dramatic cut since a two percentage point reduction in 1981. | It is the most dramatic cut since a two percentage point reduction in 1981. |
| 'Bigger than expected' | 'Bigger than expected' |
| The cut comes after a raft of weak economic data recently. | The cut comes after a raft of weak economic data recently. |
| It is the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997. | It is the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997. |
| This cut... should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers Richard Lambert, CBI UK mortgage market in graphics class="" href="/1/hi/business/7713158.stm">'No rush' on mortgage costs class="" href="/1/hi/business/7713127.stm">Bank of England statement | |
| BBC economics editor Hugh Pym said: "The Bank of England is using terms like 'very marked deterioration in the outlook' and 'severe contraction'. | BBC economics editor Hugh Pym said: "The Bank of England is using terms like 'very marked deterioration in the outlook' and 'severe contraction'. |
| "It is clearly very concerned about the possibility of a prolonged recession in the UK. | "It is clearly very concerned about the possibility of a prolonged recession in the UK. |
| "The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected." | "The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected." |
| Following the announcement the FTSE stock market gained more than 100 points, to stand down 86 points, or 1.90%, at 4444.67 by 1245 in London. | Following the announcement the FTSE stock market gained more than 100 points, to stand down 86 points, or 1.90%, at 4444.67 by 1245 in London. |
| 'The right call' | 'The right call' |
| The move has been broadly welcomed by business bodies and trade unions. | The move has been broadly welcomed by business bodies and trade unions. |
| Richard Lambert, CBI director-general, said: "This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for." | Richard Lambert, CBI director-general, said: "This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for." |
| He added: "This cut... should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers." | He added: "This cut... should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers." |
| The TUC's head of economics Adam Lent said the move was "the right call". | The TUC's head of economics Adam Lent said the move was "the right call". |
| "It shows the Bank now understands that the problem is recession not inflation." | "It shows the Bank now understands that the problem is recession not inflation." |
| Meanwhile, the Institute of Directors said interest rates could touch record lows of 2% or less by this time next year. | Meanwhile, the Institute of Directors said interest rates could touch record lows of 2% or less by this time next year. |
| "The sooner we get interest rates down the less is the risk of a long and deep recession," said IoD chief economist Graeme Leach. | "The sooner we get interest rates down the less is the risk of a long and deep recession," said IoD chief economist Graeme Leach. |
| Mortgage fears | Mortgage fears |
| There have been concerns that following a cut in the Bank of England's base rate, it would not be passed on to borrowers. | There have been concerns that following a cut in the Bank of England's base rate, it would not be passed on to borrowers. |
| Prime Minister Gordon Brown was asked about this problem in the House of Commons on Wednesday because Abbey had just raised its tracker mortgage rates for new customers. | Prime Minister Gordon Brown was asked about this problem in the House of Commons on Wednesday because Abbey had just raised its tracker mortgage rates for new customers. |
| "We want the banks and building societies to pass on the interest rate cuts to their mortgage holders," he said. | "We want the banks and building societies to pass on the interest rate cuts to their mortgage holders," he said. |
| "What we've been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary." | "What we've been trying to do over the last few weeks is get the liquidity into the system, recapitalise our banks and then get them to resume the lending that is necessary." |
| However Lloyds TSB has promised to pass on the rate cut in full to its variable rate mortgage customers. | However Lloyds TSB has promised to pass on the rate cut in full to its variable rate mortgage customers. |
| The group, which also lends through Cheltenham & Gloucester says its standard variable rate, currently 6.5%, will never be more than 2% above Bank of England base rate. | The group, which also lends through Cheltenham & Gloucester says its standard variable rate, currently 6.5%, will never be more than 2% above Bank of England base rate. |
| Manufacturing decline | Manufacturing decline |
| The Bank of England's interest rate move came after a series of figures released this week provided further evidence that the UK economy is sliding towards recession. | The Bank of England's interest rate move came after a series of figures released this week provided further evidence that the UK economy is sliding towards recession. |
| New figures from the Halifax showed house prices fell by another 2.2% in October, pushing the drop in house prices to 13.7% over the past year. | New figures from the Halifax showed house prices fell by another 2.2% in October, pushing the drop in house prices to 13.7% over the past year. |
| Activity in the service sector, the backbone of the UK economy, shrank in October for the sixth month in a row. | Activity in the service sector, the backbone of the UK economy, shrank in October for the sixth month in a row. |
| According to an index compiled by the Chartered Institute of Purchase and Supply output from services was at its lowest level since its poll began in 1996. | According to an index compiled by the Chartered Institute of Purchase and Supply output from services was at its lowest level since its poll began in 1996. |
| Also, the Office for National Statistics said that manufacturing output fell for a seventh month in September - the longest run of monthly declines since 1980. | Also, the Office for National Statistics said that manufacturing output fell for a seventh month in September - the longest run of monthly declines since 1980. |
| Manufacturing output fell by 0.8% in September, much worse than analysts' expectations, making output 2.3% lower than a year earlier, the sharpest decline since May 2003. | Manufacturing output fell by 0.8% in September, much worse than analysts' expectations, making output 2.3% lower than a year earlier, the sharpest decline since May 2003. |