Bank of England cuts key rate to 5%

The Bank of England cut the benchmark interest rate for the third time since December as the worst housing slump in 16 years threatened to push the economy into a recession.

The Monetary Policy Committee, led by Governor Mervyn King, lowered the bank rate by a quarter point to 5 percent.

"The economy is struggling," said Matthew Sharratt, an economist at Bank of America Corp in London. "They need to shore up confidence and communicate that they are willing and able to cushion the slowdown."

The Bank of England's move follows criticism from former policy maker DeAnne Julius that the central bank was slipping "behind the curve" on rates. The pound has dropped 19 percent against the euro since September as investors reined in their growth estimates for the UK economy. It fell to a record 80.29 pence yesterday.

The International Monetary Fund on Wednesday said UK growth will slow to 1.6 percent this year from 3.1 percent in 2007, the worst performance since the end of the last recession in 1992.

The rate cut may not be enough to prevent growth from deteriorating in coming months.

"We are probably facing a recession of some sort in the Western world," Lawson, who served as finance minister from 1983 to 1989, said in an interview. "Not a severe recession, but in the US and UK one that might be quite prolonged."

Agencies

(China Daily 04/11/2008 page17)