Financial Market

On Thursday the Bank of England cut interest rates by a quarter of a percentage point to 5.25%, the second cut that the BoE has made in three months.

The monetary policy committee that votes on interest rate changes, voted to reduce the BoE’s interest rate in the face of the countries economic slowdown. The quarter point reduction was widely tipped following the decision of the FED to cut rates by three quarters of a percent in January in an attempt to stave of economic recession.

The quarter point cut did not however match that of the FED due to increasing food and fuel prices pushing inflation above the two percent target the BoE sets.

According to David Kern, “Global and domestic conditions have worsened since the MPC met last month.”

Since the last meeting of MPC members the situation had changed to a point where a rate cut was now urgently needed, and a further cut to five percent may be planned as part of a two tier rate reduction. A half point cut in one meeting may well have looked like a panic move.

With the rate reduction made yesterday cost for consumers and businesses who rely on credit will be cut, boosting confidence and act as a catalyst for economic growth. At the same time however the cut will hit savers.

Following the quarter point rate cut the BoE rejected calls from a group of influential MP’s to publish a breakdown of the voting of the MPC with each meeting.

The Treasury Select Committee recommended on the ten year anniversary of the MPC that financial markets would benefit if they could see the support for any one decision.

The BoE rejected this idea saying rate setters publish the logic behind any particular vote two weeks after the decision on interest rate changes.

‘Releasing the vote at the time of the decision runs the risk of encouraging media speculation on the reasons for an individual’s vote and increases the simple-minded tendency to portray members as ‘hawks’ or ‘doves’,’ the BoE said.