International Property News


The Bank of England's monetary policy committee today cut interest rates by a full percentage point to just 2% - the lowest for 57 years and the joint lowest in history, as a deepening downturn and still-stalled credit markets prompted central banks across Europe to look for ways to boost their economies.

The cut was widely expected after a run of awful data from every part of the economy this week which suggested that Britain is tipping into a long and deep recession that could last a lot longer than Alistair Darling predicted in last week's pre-budget report.
The BOE cut its bank lending rate from 3 percent to 2 percent, a reduction that follows an even larger 1.5 percentage point reduction that the United Kingdom's central bank made last month.  TUC General Secretary Brendan Barber said: "This decision was spot on. The Bank of England could not be clearer about what it expects the high street banks to do.
"The government must now pull every lever of influence to get banks lending. If that doesn't work, radical measures will be needed straight away. The alternative is a wave of bankruptcy and redundancy."
In a news release, the bank' s monetary policy committee said that the aggressive interest rate cuts were needed because steps taken so far have not reopened credit markets or done enough to support economic growth. The MPC said it was worried about stalling business investment and consumer spending as well as falling house prices. It added in a statement that the economic outlook remained poor and credit markets essentially frozen. It also said there remained a "substantial risk" of undershooting its 2% inflation target over the next couple of years.
Earlier today the Halifax reported that house prices had fallen by 2.6% last month from October, the biggest drop since September 1992 and one which took prices down a record 16% on a year earlier. Other news showed car sales had collapsed by 37% year-on-year.
Business surveys have weakened further and suggest that the downturn has gathered pace," the statement said. "Despite the actions taken to raise bank capital, ease funding and improve liquidity, conditions in money and credit markets remain extremely difficult." It added that "it was unlikely that a normal volume of lending would be restored without further measures."
The rate cut announced in London is expected to be followed by a similar announcement today out off Brussels following a meeting of the European Central Bank's interest rate committee. The ECB serves as the central bank for the 15 nations that use the euro as a common currency.
Then last month the Bank cut by 1.5 points - the biggest cut it has ever made - to 3%, the lowest since 1955. In contrast to other European nations, the United Kingdom has acted faster and more aggressively in responding to the global financial crisis, engineering takeovers of troubled banks and financial institutions and instituting programs to try to dampen the effect of rising mortgage defaults.
And today's cut means rates have not been so low since late 1951, when they were raised to 2.5% from 2%. Prior to that they had been at 2% for 19 years bar a blip upwards for a couple of months as war broke out in 1939.
Many economists argue that the lowest rates for decades are needed given that the world economy is potentially facing its biggest downturn since the Great Depression of the 1930s. This week a succession of surveys on the manufacturing, construction and service sectors that make up the bulk of the economy all hit record lows, as did mortgage lending.
Economists said the surveys indicated that GDP would contract by 1% in the fourth quarter of the year which, added to the third quarter's fall of 0.5%, would confirm the economy was in recession, one which most expect to last at least through the first half of 2009 and possibly considerably longer.
Pressure for a cut had been growing all week. The British Chambers of Commerce and Engineering Employers Association had both appealed for a full percentage point off rates while John Hawksworth, head of macroeconomics at PricewaterhouseCoopers had urged the nine-member MPC to cut by 1.5 points to 1.5%.
Borrowers on standard variable rates (SVR) are also unlikely to see today's full reduction passed on to them. Last month a number of the major lenders were quick to reduce their SVR by the full 1.5 per cent after coming under pressure from the Government, but most lenders are not expected to pass on this week's cut in full.
However, Lloyds TSB, which also lends under the Cheltenham & Gloucester brand, has already pledged to pass on any base rate reduction to its SVR borrowers in full.
But with oil prices having fallen more than $100 a barrel since the summer and economies everywhere stalling, the danger of deflation is now more real than the risk of inflation.
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