Bank of England cuts interest rates by 0.25%

The Bank of England today joined the international campaign to boost market confidence by cutting interest rates to their lowest level for nearly 30 years.

After rate cuts yesterday by the US Federal Reserve and the European Central Bank and today's cut by the Bank of Japan, the Bank of England lowered the cost of borrowing by 0.25% to 4.75%. Today's action marked the first time the Bank's monetary policy committee has cut rates outside its scheduled meetings. The committee had not been due to meet until next month.

The last time UK rates were lower than 5% was at the beginning of 1964; they were held at 4% for more than a year from January 3 1963, before being raised on February 27 1964 to 5%. The Bank's move came despite today's official figures showing inflation rising to its highest level for two years. The Bank clearly believes that the possibility of a slowdown after last week's terror attacks in the US poses a greater threat than inflation.

The Fed led the concerted move to cut rates yesterday, when it slashed interest rates by half a point, an hour before the New York stock exchange reopened for the first time since last week's disaster.

Other banks around the world had swiftly followed suit, with the ECB also cutting rates by half a percentage point, as did the central banks of Canada, Switzerland and Sweden.

In explaining its decision, the Bank of England said: "Falls in stock markets around the world, and the likely impact on confidence, suggest a weaker outlook for global activity than appeared likely at the committee's meeting earlier this month. It is too early to make an informed judgment about the scale of the impact on the UK economy. But the direction of that impact and the associated risks are clear. The committee decided that an immediate reduction of interest rates was therefore, appropriate."

Philip Shaw, of the broker, Investec, said: "The MPC's move today clears up the uncertainty about the Bank of England's intentions and should be very much welcomed in that regard. The accompanying statement clearly sets out the risk to activity and inflation ... given the recent attacks on America. We may
well see the committee bringing rates down by a further 25 basis points [0.25%] at its scheduled meeting in October."

Shortly after the rate cut mortgage lended Abbey National announced a 0.1% cut in its mortgage rate to 6.65% The Halifax Bank, the UK's biggest mortgage lender, said its rates were under review. Nationwide Building society, Britain's biggest mutual lender, said it was also reviewing its current rates.