UK slashes key rate to lowest ever

By Jennifer Ryan | March 6, 2009, Friday |

Print Edition

THE Bank of England reduced the benchmark interest rate to the lowest ever and said it would start purchasing 75 billion pounds (US$105 billion) in assets, printing money to fight the recession.

The bank's nine-member panel, led by Governor Mervyn King, cut the rate a half point to 0.5 percent, the lowest since the bank was founded in 1694. The decision matched the median forecast of 60 economists in a Bloomberg News survey.

"In these highly uncertain times, there are merits to stimulating the economy through a variety of different channels," King wrote in a letter to Chancellor of the Exchequer Alistair Darling dated February 17 and published yesterday.

King's Monetary Policy Committee wants to pump newly printed money into the economy to alleviate a worsening recession as interest rates approach zero and lose their potency. British Prime Minister Gordon Brown yesterday called on nations around the world to follow the lead of the United States and United Kingdom by cutting borrowing costs and spending more to battle the recession.

In a statement accompanying the decision, the bank said it may take up to three months to carry out the asset purchases. Most of the assets will be UK government bonds known as gilts.

Economy

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UK slashes key rate to lowest ever

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