Central banks cut interest rates in unprecedented move

Just a day ahead of the scheduled Monetary Policy Committee meeting, the Bank of England followed other global central banks by slashing the base interest rate by 0.5% in an unprecedented move. The interest rate in the UK has dropped from 5%, where is has stood since April, to 4.5%. Many lenders also reduced their borrowing interest rates right away upon hearing the news. Other global central banks have also shaved half a percentage point from their base rates, including Sweden, Switzerland, Canada, the United States, and Europe.

The US Federal Reserve cut its base rate by 0.5%, taking it from 2% to 1.5%. The European Central Bank also cut the base rate by 0.5% taking it from 4.25% to 3.75%. China also cut its rates but only by 0.27%. Although the news of the rate cuts was welcomed around the world, officials said that the news failed to have any positive effects on the market, with many investors still not convinced that the move would help to stabilise financial markets.

After hearing the news about the rate cut as well as details of the government’s plans to try and bail out UK banks, one industry 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.”

Another official said that the rate cut would “provide at least a temporary boost to confidence”. However, he also said: “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.”

One economist 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.” Officials from the US Federal Reserve stated that it acted “in light of evidence pointing to a weakening of economic activity and a reduction in inflationary pressures”.