BoE slashes rate by 1.5%

The Bank of England (BoE) unexpectedly cut the benchmark interest rate by 1.5 percentage points to the lowest since 1955 as policy-makers tried to limit damage caused by the worst banking crisis in almost a century.

The nine-member Monetary Policy Committee, led by Governor Mervyn King, reduced the bank rate to 3 per cent, the biggest single step in more than a decade. The move was predicted by none of the 60 economists in a Bloomberg News survey. “It’s absolutely staggering and deeply impressive,’’ said Brian Hilliard, director of economic research at Societe Generale in London. “They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.’’

The seizure in credit markets has left Britain on the edge of its first recession since 1991, prompting a $80-billion bank rescue package from the government and a half-point emergency rate cut on October 8. With the economy headed into recession, the danger is that inflation will slow more than policy makers want.