PE Tech Report

NEWSLETTER

Like this article?

Sign up to our free newsletter

European Midday Report: Central banks slash interest rates

The Bank of England, the US Federal Reserve, the European Central Bank, and the central banks of Canada, Sweden and Switzerland, all moved to cut i

The Bank of England, the US Federal Reserve, the European Central Bank, and the central banks of Canada, Sweden and Switzerland, all moved to cut interest rates by midday (GMT) Wednesday in a coordinated move to try and halt turmoil in the stockmarkets.

The UK rate cut by the Bank of England – which had not been expected until Thursday – puts the interest rate at 4.5 per cent, down from 5 per cent. The previous change in the UK bank rate was a reduction of 0.25 percentage points to 5.0 per cent on 10 April 2008.

The Bank of England states, “Data released over the past month indicate that the outlook for economic activity in the United Kingdom has deteriorated substantially, reflecting a sharp monetary contraction.  Output growth slowed to a halt in the second quarter, business surveys point to further weakening during the second half of this year, and the labour market has softened.  Consumer spending growth has slowed, in part as a result of the squeeze on real incomes, while business and dwellings investment have declined.  Equity prices have fallen, and the further tightening in credit conditions will also weigh on domestic demand growth.  The depreciation in sterling over the past year should support net exports, but the prospects for demand growth in the UK’s main export markets have worsened.  The weakness in output growth at home will open up a growing margin of spare capacity that will over time bear down on inflation.”

The US Federal Reserve has cut rates from 2 per cent to 1.5 per cent and the European Central Bank (ECB) dropped its rate from 4.25 per cent to 3.75 per cent.

The Fed states, “Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit. Inflation has been high, but the Committee believes that the decline in energy and other commodity prices and the weaker prospects for economic activity have reduced the upside risks to inflation. “

The central banks of Canada, Sweden and Switzerland all took similar action to cut rates in the coordinated move.

Like this article? Sign up to our free newsletter

FEATURED

MOST RECENT

FURTHER READING