Rates Cut Again as Recession Deepens
TIMESONLINE: Cost of borrowing lowest in more than 50 years

The economy is plunging deeper into recession despite emergency tax cuts and the multibillion-pound bank bailout, the Bank of England said yesterday.

Cutting the base rate to its lowest level in more than 50 years, the Bank said the outlook now was worse than a month ago, with manufacturing and consumer spending in sharp decline.

The one-point cut left the base rate at 2 per cent, its lowest since 1951, but economists are forecasting already that the cost of borrowing could fall further, with a base rate of zero per cent no longer out of the question. The Bank’s dramatic move followed a relentless stream of dire economic news over the past four weeks that has fuelled fears that Britain’s plight will be worse than the recession of the early 1990s.

The Bank, which cut rates by 1.5 percentage points in November, acknowledged the risk of a deep, prolonged recession yesterday. It conceded that more will need to be done to jump-start stalled growth, and paved the way for further rate cuts. In a bleak assessment, it said: “Business surveys have weakened further and suggest that the downturn has gathered pace. Consumer spending and business investment have stalled.” >>> Gary Duncan, Philip Webster, Gráinne Gilmore | December 5, 2008

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Interest Rates Cut: Bank of England Cuts Rates from 3 per Cent to 2 per Cent
THE TELEGRAPH: The Bank of England has cut UK interest rates from 3 per cent to 2 per cent, the lowest level since 1951 in an attempt to stop the economy sliding into a deep recession.


Rates have never been any lower since the Bank's foundation in 1694.
The aggressive move, which most economists had forecast, comes as a raft of data shows the state of the economy is worsening by the day.

Earlier today, Halifax, the country's largest lender said that house prices had fallen by 2.6 per cent in the last month alone, and have now lost more than £37,000 from their peak last summer.

Two important manufacturing and services surveys this week have shown factories and businesses are feeling the squeeze, while The Pier furniture chain became the latest retailer to collapse into administration.

Economists welcomed the move, saying it was the bare minimum required.

Hetal Mehta, Senior Economist from the Ernst & Young ITEM Club, said: "You could almost hear the sigh of relief up and down the country when the Bank of England's Monetary Policy Committee announced a 100 basis point cut in the base rate.

"As was the case last month, it was almost certain that interest rates would be slashed, but the big question was by how much. ITEM believes that the MPC was right to cut the base rate of interest to 2 per cent – anything less would have been a missed opportunity."

The move will save anyone on a £200,000 tracker-rate repayment mortgage just over £100 a month. Someone on an interest-only mortgage would save even more. >>> By Harry Wallop, Consumer Affairs Editor | December 4, 2008

THE TELEGRAPH: World Stability Hangs by a Thread as Economies Continue to Unravel

The political bubble is bursting. Spreads on geo-strategic risk are now widening as dramatically as the spreads on financial risk at the onset of the credit crunch.

Whether it is the Indian rupee, the Shanghai bourse, or Kremlin debt, the stars of the credit boom have fallen to earth. Investors are retreating into 3-month US Treasury bills – the ultimate safe-haven. The yield has fallen to 0.02pc, less than zero after costs. You pay Washington to guard your money.

The working assumption of the "Great Boom" is – or was – that we live in a benign era where most societies are converging towards some form of market liberalism; where trade and capital flows are unrestricted; where governments have enough legitimacy to keep order by light touch; where a major war is unthinkable.

This illusion is now being tested. >>> By Ambrose Evans-Pritchard | December 1, 2008

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