Interest Rate Cut In England

The Bank of England cut a key lending rate by one-half percentage point Thursday in an effort to keep the economy growing.

The cut brings its base lending rate for loans to commercial banks to 6.75 percent and follows a drop of 0.25 percentage points last month. Business leaders have been urging a substantial cut to stave off recession.

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German central bankers have also been under intense political pressure to cut interest rates.

The Bank of England said the cut was needed to hit its 2.5 percent inflation target and that news about international economic conditions had prompted it to moderate its growth forecasts for next year and downgrade its projection for inflation over the next two years.

The move was welcomed by business leaders and hailed as "brave" by analysts, while mortgage companies immediately moved to cut lending rates by the same amount.

Kate Barker, chief economic adviser for the Confederation of British Industry, said that as inflationary pressures eased there should be room for further reductions in the coming months.

"Business will welcome this decision as the right response to our warnings on the increasing risk of a U.K. recession," she said. "Similar cuts are still likely to be necessary in the months ahead if we are to head off the dangers of recession next year."

Shares jumped on the news, only to fall back later as dealers digested the bank's comments and concluded that further cuts were now unlikely.

But the cut would not save the economy single-handedly, with the global financial crisis far from over, said Julian Jessop, economist at Nikko Europe.

Geoffrey Dicks, economist at Greenwich NatWest, said that while he welcomes the break with precedent in the face of international economic turmoil, rates still need to come down to about 6 percent.