Page last updated at 10:38 GMT, Wednesday, 19 November 2008

Bank hints at further rate cuts

Interest rate graph

Expectations of another rate cut have risen after the release of minutes from the Bank of England meeting at which rates were lowered from 4.5% to 3%.

The Bank's nine-member committee voted unanimously for the cut on 6 November, but considered a bigger one.

The Bank's own calculations showed that a cut to 2.5%, or even lower, would be needed to stop inflation falling too far below its target next year.

But the rate-setters decided such a big cut would come as too much of a shock.

We continue to expect interest rates to fall to 1% or even below next year
Jonathan Loynes, Capital Economics

The one-and-a-half percentage point cut they agreed on was the biggest reduction since 1981, and took rates to the lowest level since 1955.

"It's confirming that we're going to see more rate cuts from the Bank of England, and more aggressive rate cuts," said Audrey Childe-Freeman from Brown Brothers Harriman.

Currency concerns

The minutes said that: "Some members thought there was an argument for leaving some of the required policy loosening to the months ahead to support confidence as the economy weakened."

There was also concern that if rates had been cut by any more, there could be too sharp a fall in the value of the pound, which would create inflationary problems.

In addition, the committee's members were worried that a bigger cut could be "misinterpreted" and that this could damage its credibility.

The Bank stressed that its decision was based on the government's current tax and spending plans, which meant they would have to be reconsidered after the chancellor's pre-Budget report, which will be published on Monday.

"We continue to expect interest rates to fall to 1% or even below next year," said Jonathan Loynes at Capital Economics.

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