INSTANT VIEW: BoE cuts interest rates to 1.50 percent

LONDON (Reuters) - The Bank of England cut borrowing costs by 50 basis points to 1.5 percent as expected on Thursday, a record low, amid signs Britain is heading for a deep recession.

Following are reactions from business groups and economists to the decision.

MICHAEL COOGAN, COUNCIL OF MORTGAGE LENDERS

"This cut is a double-edged sword for retail based lenders. While lower mortgage rates provide borrowers with the opportunity to repay their mortgage debt more quickly to reduce the term, lower savings rates impact lenders' ability to attract deposits and maintain the flow of mortgage lending in 2009.

"The market is still not functioning properly and is likely to lead to a fragmented approach by lenders, as they try to balance the interests of savers and borrowers and other pressures on their businesses, in responding to today's announcement."

GEORGE JOHNS, BARCLAYS CAPITAL

"It was as expected, we are not changing our view. We are looking for a 50 basis point cut next month."

"At the moment we expect to mark the trough for rates at 1 percent."

PETER DIXON, COMMERZBANK

"It all looks pretty much in line to me. Obviously the bank is concerned with the implications that the slowdown in global demand is going to have on the UK, but that's not something the bank itself can do much about. The issue of a lack of liquidity in the economy remains an ongoing problem. The fact is we're probably near the trough on rates and we're rapidly reaching the point at which there's not a lot the Bank will be able to do, short of engaging in quantitative easing and that's nothing it can do without specific input from the Treasury."

MATTHEW SHARRATT, BANK OF AMERICA

"It appears that the Bank of England has taken a cautious approach in cutting by 50 basis points. I think it will be slightly disappointing to the market, which had been pricing somewhat more than that, but I think they have quite clearly acknowledged the significant deterioration in the economy.

"But I suspect with data being exceptionally weak and unemployment likely to continue to surge higher in coming months that we haven't seen the last of the rate cuts yet and they are probably going to cut again in February.

"We think that rates will probably bottom out at 0.5 percent by the end of the first quarter."

GEORGE BUCKLEY, DEUTSCHE BANK

"The statement didn't make any specific reference to quantitative easing, confirming what the Chancellor said earlier.

"It was fairly general, talking about the possible support to the economy that both monetary and fiscal policy is providing, also the decline in sterling. We think they'll cut by 50 basis points in February and another 50 basis points in March, but there's a risk of a bigger cut in February because of the Inflation Report."

HOWARD ARCHER, GLOBAL INSIGHT

"We expect the Bank of England to cut interest rates again in February and to bring them down to a low of 0.25-0.50 percent in the second quarter.

"Indeed, it is very possible that they could come all the way down to zero. In addition, it seems ever more likely that the Bank of England will engage in some form of quantitative easing over the coming months, in tandem with the Treasury."

DAVID PAGE, INVESTEC

"There is a clear deterioration in the economy which means that the MPC had to continue easing. However, there are a number of reasons -- not least looking to how the (fiscal) stimulus is affecting the economy and keeping some ammunition for the months to come -- to reduce the pace of aggressive easing. So it seems the perfect compromise."

TREVOR WILLIAMS, LLOYDS TSB

"The Bank of England will have been spurred on by the deterioration in several economic indicators -- not least a sharp contraction in economic output. But its job has been made easier still, by the sharp drop in inflationary pressure.

"High inflation was, until recently, a real danger which would only have been exacerbated by falling rates. But as this threat has subsided to be replaced by deflation concerns, the Bank has much more leeway to make the cuts necessary to help to tackle the downturn."

BRIAN HILLIARD, SOCIETE GENERALE

"I think it's pretty likely that it was sterling that decided them to slow down the pace of cuts. I still think there's more in the pipeline. Notable by its absence was any comment on quantitative easing. I don't think it's actually on the agenda until they get rates down to close to zero."

STUART PORTEOUS, HEAD OF RBS GROUP ECONOMICS

"Few people - and certainly not the MPC - question the challenges the UK faces in 2009. As rates head toward zero, policymakers will be forced to embark on ever more unorthodox measures to get the economy moving again. Listen carefully and you can almost hear the printing presses being cranked up."

ALAN CLARKE, BNP PARIBAS

"I'm disappointed that they've only cut by 50 basis points. It seems the weaker pound stopped them cutting by more. I think they are still in cutting mode but have taken their foot off the gas this month."

IAN MCCAFFERTY, CHIEF ECONOMIC ADVISOR, CBI

"Today's more modest interest rate cut reflects the Bank's recognition that interest rate reductions on their own cannot restore credit flows, the most important factor determining the prospects for the economy.

"However, this move to support business and consumer confidence will be welcomed.

"If credit flows can be restarted, the monetary stimulus now in the pipeline is significant, especially when the fall in the pound is taken into consideration. A more gradualist approach to rate setting is likely in the coming months."

STEVE RADLEY, CHIEF ECONOMIST, ENGINEERING EMPLOYERS'

FEDERATION

"This year was already going to be a serious challenge for manufacturers but all the indications are that the downturn is gathering pace at home and abroad. Whilst the Bank has indicated it wanted to take a measured approach to cutting rates, this is too timid to deal with the current situation. Given the expectation that rates will be cut again the question has to be asked "why wait'?"

DAVID KERN, ECONOMIC ADVISER, BRITISH CHAMBERS OF COMMERCE

"British business is disappointed by the MPC's decision today to cut interest rates by just a half per cent. We believe it is an inadequate reaction to the rapid worsening in economic circumstances.

"The recent downward revision in GDP figures, coupled with further unemployment increases and rapid declines in house prices, justified a full one per cent cut in rates, in line with the BCC's recommendations.

"The outlook is dire, and the MPC must act forcefully. "In order to ensure that the economy does not slide into a prolonged depression, we urge the MPC to reduce interest rates to almost zero in the next few months. It must also supplement lower interest rates with vigorous quantitative easing."

GRAEME LEACH, CHIEF ECONOMIST, INSTITUTE OF DIRECTORS

"Today's decision doesn't change our view that interest rates will be pushed toward zero over the coming months.

"The MPC's cautious reduction highlights the uncertainty over what effect the existing monetary and fiscal stimulus will have on the economy and also whether or not the Bank of England should go nuclear with limited printing of money or thermonuclear with extensive printing of money.

"Record low interest rates, a sharp sterling devaluation and the reduction in VAT have combined with the Christmas period to encourage the Bank to hold back from a deeper cut for the time being."