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UK slashes rates to record low
February 5, 2009 / 4:48 AM / 9 years ago

UK slashes rates to record low

NEW YORK/LONDON (Reuters) - Economic news was bleak on both sides of the Atlantic on Thursday, as German manufacturing plunged and a measure of U.S. joblessness soared.

<p>Directions in front of the Bank of England in the City of London, January 16, 2009. REUTERS/Toby Melville</p>

The Bank of England slashed interest rates to a record low, but the European Central Bank left rates steady and the U.S. Senate struggled with an economic stimulus plan.

“It’s pretty ugly,” Boris Schlossberg, director of currency research at GFT Forex in New York, said after U.S. jobless figures were released, adding that it “goes to show that the economy is convulsing and contracting.”

The number of Americans filing for first-time jobless benefits soared to a 26-year high last week, and the government’s payroll report, due on Friday, could show the economy shed another 525,000 jobs in January.

The deepening recession in economies across the globe forced Britain’s central bank to cut borrowing costs by half a percentage point to 1 percent -- the lowest since the Bank of England was created in 1694.

“The global economy is in the throes of a severe and synchronized downturn,” the BoE said in a statement after delivering the latest in a series of aggressive cuts aimed at boosting the flagging British economy.

Central banks worldwide have cut interest rates sharply to stimulate demand in the midst of mass layoffs and factory closures, with the Federal Reserve and Bank of Japan pushing rates to near zero.

The ECB has also reduced rates over the past four months, though at a slower pace than its counterparts. While ECB President Jean-Claude Trichet hinted Thursday that the bank could still push rates below the current 2 percent, he said moving toward zero was not appropriate.

Unlike the ECB, the Bank of England was expected to move toward zero interest rates though some economist were skeptical about the efficacy of such a move.

“Interest rate cuts are not the only tool to fix the recession,” said Jane Milne of the British Retail Consortium. “The key issue now is not the cost of credit, but its availability.”

Atsushi Mizuno, who sits on the Bank of Japan’s rate-setting policy board, said the world’s No. 2 economy was facing a hard landing and may have to adopt new policies.

<p>Pedestrians walk past the Bank of England in London, February 5, 2009. REUTERS/Stephen Hird</p>

“The Bank of Japan should be prepared to act promptly, including taking measures that could be considered unconventional in normal times,” he said.


Beyond interest rate policy, governments worldwide are scrambling for ways to beat the worst financial crisis since the 1930s and stem mounting job losses and social unrest.

Glum figures from U.S. corporate stalwarts such as Kraft Foods raised pressure on lawmakers to finalize a $900 billion fiscal stimulus plan, which the U.S. Senate was expected to vote on this week.

Lawmakers softened a “Buy American” clause in the stimulus plan that President Barack Obama said could spark a trade war.

European shares fell as rising bad loans at Spain’s biggest bank, Santander (SAN.MC), and a bleak outlook at Deutsche Bank (DBKGn.DE) unnerved investors.

U.S. investor Warren Buffet invested 3 billion Swiss francs ($2.6 billion) into Swiss Re RVKN.VX, though shares in the world No.2 insurer fell 25 percent after it said it had written down twice that sum in toxic assets.

Deutsche Bank reported a net loss of almost 4 billion euros in full-year 2008, compared with a 6.5 billion euros profit a year earlier, on heavy write-downs and a slump in revenues from debt trading and other products.

“Looking forward, we see continuing very difficult conditions for the global economy,” said Josef Ackermann, Deutsche Bank’s chief executive.

Elsewhere, UK new car sales crashed by almost a third in January, their worst performance since 1974.

Germany saw the fourth straight plunge in manufacturing orders in December, the biggest decline since 1990. [ID:nL5683354] Germany’s Economy Ministry said the outlook for the euro zone’s biggest economy remained “extremely subdued.”

In Spain, industrial output in December slid 19.6 percent year-on-year, its sharpest slowdown on record, and business lobbies blamed banks for the country’s severe recession and demanded state intervention if banks fail to boost lending.

Reporting by Reuters bureaus worldwide; editing by Gary Crosse

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