Special Report: Global Financial Crisis

People walk past the Bank of England in the City of London January 8, 2009. The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent and is widely expected to cut again in February as it battles to prevent Britain from falling into a deep slump.(Xinhua/Reuters Photo) Photo Gallery>>>

    BEIJING, Jan. 9 -- The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain's recession.

    The Monetary Policy Committee, led by Governor Mervyn King, trimmed the bank rate by a half point to 1.5 percent. The result matched the median forecast of 60 economists in a Bloomberg News survey. The pound rose against the euro and the dollar.

    "The availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non- financial sector," the Bank of England said in a statement.

    "Output is likely to continue to fall sharply during the first part of this year."

    The reduction limits the central bank's scope to keep fighting the recession with its main policy tool. That may spur King to cooperate with Prime Minister Gordon Brown to inject money into the economy and the financial system through so- called quantitative easing.

    "They'll come down below 1 percent by the second quarter," said Philip Shaw, chief economist at Investec Securities in London. "Things have deteriorated further and this highlights the need for further monetary stimulus. Quantitative easing or non-conventional monetary policy techniques are on the cards."

    The pound rose as the Bank of England's move dashed some investors' expectations of a larger cut. The currency climbed as much as 1.3 percent against the euro after the decision and traded at 89.06 pence per euro as of 12:30 pm in London.

    The Bank of England cut the benchmark interest rate to the lowest since the central bank was founded in 1694 as policy makers tried to prevent the credit squeeze from deepening Britain's recession.

    The Monetary Policy Committee, led by Governor Mervyn King, trimmed the bank rate by a half point to 1.5 percent. The result matched the median forecast of 60 economists in a Bloomberg News survey. The pound rose against the euro and the dollar.

    "The availability of credit to both households and businesses has tightened further, pointing to the need for further measures to increase the flow of lending to the non- financial sector," the Bank of England said in a statement.

    "Output is likely to continue to fall sharply during the first part of this year."

    The reduction limits the central bank's scope to keep fighting the recession with its main policy tool. That may spur King to cooperate with Prime Minister Gordon Brown to inject money into the economy and the financial system through so- called quantitative easing.

    "They'll come down below 1 percent by the second quarter," said Philip Shaw, chief economist at Investec Securities in London. "Things have deteriorated further and this highlights the need for further monetary stimulus. Quantitative easing or non-conventional monetary policy techniques are on the cards."

    The pound rose as the Bank of England's move dashed some investors' expectations of a larger cut. The currency climbed as much as 1.3 percent against the euro after the decision and traded at 89.06 pence per euro as of 12:30 pm in London.

    (Source: China Daily/Agencies)