LONDON - The Bank of England cut interest rates for the first time in over 2 years on Thursday in order to shore up the economy in the face of a global credit crunch after a week of feverish speculation over what it would do.
The quarter-point cut to 5.5 percent, which reversed July's hike, was needed, the central bank said, because economic growth was slowing and the state of financial markets was getting worse, piling pressure on both companies and consumers.
"The Bank of England has pulled the rip-cord to much lower rates," said David Brown, economist at Bear Stearns.
In the United States, where the market troubles began, the Federal Reserve has already chopped rates by 75 basis points and looks certain to cut again next week as the turmoil rages on.
A Reuters poll after the Bank cut put the chances of another reduction in Britain in the first three months of 2008 at 80 percent. Two-thirds said rates would hit 5 percent by June.
Retail and business groups cheered the early Christmas present and the government must be hoping the prospect of cheaper mortgage payments will revive flagging consumer spirits and restore Prime Minister Gordon Brown's poll ratings.
As expected, Halifax, the nation's largest mortgage lender, said it would cut its standard variable mortgage rate by 25 basis points for existing borrowers from Jan 1.
FROM SCROOGE TO SANTA
But some questioned whether a cut was really appropriate now given rising price pressures. In Frankfurt, the European Central Bank left interest rates on hold and a cut seems a long way off given euro zone inflation is at a 6-year high.
Even in London, Europe's biggest financial centre, most banks thought until this week that the Bank would keep interest rates unchanged this month given the soaring cost of food, oil and other commodities.
