The Bank of England has cut interest rates in the UK by one-and-a-half percentage points to 3%, its lowest since 1955, in a shock move. Cities Investors indicate that they see this as a turning point.

Last month The Bank of England cut rates from 5% to 4.5% in an emergency move co-ordinated with other central banks.

There had been widespread calls from industry for a major cut as the country begins to face up to the prospect of a deep recession. It is the most dramatic cut since a two percentage point reduction in 1981. 'Bigger than expected' The cut comes after a raft of weak economic data recently. It is the first time the Bank has cut rates by more than half a percentage point since gaining its independence in 1997.

BBC economics editor Hugh Pym said: "The Bank of England is using terms like 'very marked deterioration in the outlook' and 'severe contraction'. "It is clearly very concerned about the possibility of a prolonged recession in the UK. "The risks of high inflation have now evaporated, and because the bank is worried that inflation will now fall well below its target, it has felt the need to come up with this cut, which is much bigger than expected." Following the announcement the FTSE stock market gained more than 100 points, to stand down 86 points, or 1.90%, at 4444.67 by 1245 in London. 'The right call' The move has been broadly welcomed by business bodies and trade unions. Richard Lambert, CBI director-general, said: "This is a bold and welcome move by the Monetary Policy Committee, and achieves what the CBI had been calling for." He added: "This cut... should help to ease conditions in the credit markets, and allow banks to pass the benefits on to their customers." The TUC's head of economics Adam Lent said the move was "the right call".

[Source - BBC.co.uk - 6th November 2008]