Finance and Economic

The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent and economists expect it to cut again in February as it battles to prevent Britain from falling into a deep slump.

British interest rates have now fallen by 3.5 percentage points since October as policymakers caught on the hop by the severity of the downturn pull out all the stops to revive an economy facing its first recession since 1992.

In a statement accompanying its decision, the BoE said output was likely to keep falling sharply in the first half of the year, although recent tax and interest rate cuts combined with the sharp fall in sterling would give the economy a boost.

Rates in Britain never fell below 2 percent even during the Great Depression of the 1930s, underlining the scale of the current crisis hurting economies all around the world. In the United States, rates now range between 0 and 0.25 percent.

Economists said the BoE would cut again next month and interest rates could even fall below 1 percent, perhaps alongside a signal they would stay very low for a very long time. Even boosting the money supply has not been ruled out.

“They are still in cutting mode but have taken their foot off the gas this month,” said Alan Clarke, UK economist at BNP Paribas.

The pound, down 15 percent against the euro since the BoE started its aggressive interest rate campaign in October, rose after the decision as many in the market had been pricing in a bigger move after the last month’s 1 point reduction personal loans.

Short sterling interest rate futures also turned negative as markets priced in less aggressive monetary easing ahead.

The BoE said further measures were also needed to increase lending to businesses and consumers. One of the key causes of the current downturn is that banks are unwilling to extend credit as they struggle to repair their own balance sheets.

Prime Minister Gordon Brown promised on Thursday more measures in the next few weeks to get banks to resume their lending.

“So we want to move from the capitalization of the banks to securing the funding that is necessary, for business projects, for home ownership and for the everyday business concerns that people have in the banking system,” he said.

DEEP DOWNTURN

The lack of credit after years of cheap money is driving more and more businesses to the wall while ordinary Britons who racked up more than a trillion pounds of debt in the good years are now having to severely curtail their spending.

Thousands of jobs have been lost in Britain’s retail sector alone over the last month with some big high street names such as Marks & Spencer () shutting stores and Woolworths disappearing altogether.

Britain’s two biggest employment agencies, Hays () and Michael Page (), warned of deteriorating market conditions on Thursday, and said they had cut hundreds of their own staff in response to the slowdown. 

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