The Bank of England cut interest rates by another 50 basis points on Thursday to a new all-time low of 1.0 percent, aiming to help the British economy out of recession by getting consumers and companies spending again.
The widely-expected move means that British interest rates have now fallen for five months running and by a total of four percentage points as the 18-month-old global credit crunch has brought the economy to its knees.
The BoE noted that though there was already a lot of stimulus to the economy — from past rate cuts, the sharp fall in sterling and commodity prices, and a big fiscal injection — there was still a big risk that inflation would fall below its target of 2 percent.
With interest rates approaching zero, analysts said the central bank may soon have to start boosting the money supply in order to get demand going again.
"The Bank is quickly running out of wriggle room on rates. Other weapons in the Bank's arsenal are now being readied for the offensive — buying assets first, printing money second," said Stuart Porteous of RBS Group Economics.
Interest rates have fallen sharply around the globe as the world experiences what the BoE described on Thursday as the "throes of a severe sharp downturn".
The Federal Reserve has already cut U.S. rates to a record low of between zero and 0.25 percent. In Japan, they stand at just 0.1 percent. The European Central Bank is expected to keep euro zone rates at 2.0 percent later on Thursday but then cut them to a record low next month.
The International Monetary Fund has predicted the British economy could be the worst-hit in the industrialised world, shrinking 2.8 percent in 2009.
Industry figures out shortly before the BoE decision showed car sales in January plunged 30.9 percent on the year, the worst showing for the month since 1974. House prices unexpectedly rose in January, according to the Halifax index, but were still down 16.4 percent on the year.
Further clues on the next direction for policy will come in next week's Inflation Report. The BoE will probably find it hard to forecast inflation at anything much over 1 percent in two years' time. It is required to keep inflation at 2 percent.
