BoE facing pressure to slash rates

Last Modified: 08 Oct 2008
Source: PA News

Bank of England policymakers meet under intense pressure to slash interest rates after a month of unprecedented financial chaos and worsening economic gloom.

Inflation fears have kept the rate set by the Bank's Monetary Policy Committee (MPC) on hold at 5% since April, but it could vote for a 0.5% cut on Thursday - the first such move since the aftermath of the 9/11 attacks in November 2001.

Business leaders have piled on the pressure for deep cuts as policymakers prepare their response to the worst financial turmoil in living memory.

The pain is being now being felt in the real economy as businesses feel the squeeze of tighter credit from lenders and mortgage lending all but grinds to a halt, hitting house prices and consumer confidence.

Billionaire businessman Sir Richard Branson has called on the MPC to slash rates as much as 1% this week, with both the British Chambers of Commerce and CBI calling for 0.5% cuts.

The BCC warned this week that the UK is already in recession and said unemployment could rise above two million in the next two years, as the chaos in financial markets threatens to tip the UK into a deep recession.

Since the collapse of US investment bank Lehman Brothers on September 15, there have been bailouts and nationalisations on both sides of the Atlantic, including Bradford & Bingley in the UK.

London's FTSE 100 Index plunged to its biggest fall since Black Monday in 1987 this week as the turmoil spread through Europe, while interbank lending has all but ground to a halt, seizing up the financial system.

Virgin boss Sir Richard - who also called for the UK to guarantee all UK savings deposits - said: "I think there should be a very big interest rate drop this Thursday, as much as 1%."

A snap poll of thousands of small firms by the Federation of Small Businesses also showed the "devastating" impact of the credit crunch as borrowing costs soar.

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