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BOE slashes rates to record low to fight slump

THE Bank of England slashed interest rates to a record low yesterday to help the United Kingdom out of recession, while dire German industry orders and Spanish industrial output confirmed European businesses were struggling.

The British central bank cut its base rate by 50 basis points to 1.0 percent, the lowest since its creation in 1694 and the latest in a series of aggressive cuts designed to stimulate the flagging economy.

"The global economy is in the throes of a severe and synchronised downturn," the bank said in a statement accompanying the decision. "Output in the advanced economies fell sharply in the fourth quarter of 2008, and growth in the emerging market economies appears to have slowed markedly," it added.

Policy makers have cut interest rates sharply in an effort to stimulate demand and get credit flowing again after a financial crisis that began with a collapse in risky United States home loans has devastated the banking sector and pushed the US, the euro zone, the UK and Japan into recession.

The International Monetary Fund says the UK's economy, heavily dependent on the ravaged financial sector, could be the worst-hit in the industrialized world, falling by 2.8 percent in 2009.

UK new car sales crashed 30.9 percent year on year in January, their worst performance since 1974. But an unexpected rise in house prices that month led some analysts to suggest the market could be stabilizing.

Governments and policy makers worldwide are scrambling for policies to beat the worst financial crisis since the 1930s as consumption falls and unemployment and social unrest rise.

The global downturn has hit major exporters like Germany, where manufacturing orders posted their biggest fall since 1990, tumbling 6.9 percent in December month on month. That was far beyond the 2.5 percent consensus forecast and the fourth steep drop in succession.

The outlook for the euro zone's biggest economy remained "extremely subdued," the Economy Ministry said.

Adding to the gloom, Spanish industrial output in December fell 19.6 percent year-on-year, its sharpest slowdown on record. Business lobbies blamed banks for Spain's severe recession and demanded state intervention if banks fail to boost lending.

European shares fell in early trading on a large writedown by insurer Swiss Re, while rising bad loans at Spain's biggest bank Santander and a bleak outlook at Deutsche Bank fueled concerns about the wider economy.

Global uncertainty prompted consumer goods giant Unilever to abandon all its targets.


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