Interest rate cut to historic 1.5% (From Middlewich Guardian)

Interest rate cut to historic 1.5%

12:22pm Tuesday 13th January 2009

© Press Association 2008

The Bank of England has made history by slashing interest rates to an all-time low of 1.5%.

Rate-setters cut borrowing costs from 2% to 1.5% - the lowest since the Bank was founded in 1694 - but disappointed those looking for an even bigger move to combat a worsening recession.

The Bank is attempting to offer relief to borrowers and businesses but mortgage customers have been warned not to expect lenders to pass on the cut in full.

The Bank said the world economy "appears to be undergoing an unusually sharp and synchronised downturn". UK output is likely to continue to fall sharply during the first part of this year, it said.

But the cut in rates was lower than in the past two months as the "substantial depreciation" of the pound gave it room to manoeuvre.

The Bank said the recent deep rate cuts and Government spending plans, the fall in sterling and lower inflation would "provide a considerable stimulus" to the economy as the year progressed.

The Bank's Monetary Policy Committee (MPC) has now cut rates by a mammoth 3.5 percentage points since the beginning of October as concerns over a lengthy recession overshadow previous inflation fears.

Its latest credit conditions survey warns that lending to households and businesses is set to fall further during the first three months of this year, despite a taxpayer-funded bail-out of the UK banking system.

The MPC also weighed up a raft of gloomy economic data on falling house prices, as well as manufacturing and services activity close to record lows - despite hopes of an export boost from a pound hammered by the recent rate cuts.

Speculation is mounting that the Bank and the Treasury could agree a policy of so-called "quantitative easing" - effectively printing more money - to spur on the economy with rates approaching zero and banks still reluctant to lend.