Bank of England Rate Cuts

Economic data released on December 3, 2008 have Europe’s central bankers worried, including the influential Bank of England. The new figures corroborate extant suspicions that the United Kingdom’s and Europe’s economy are headed in the wrong direction. This behavior mirrors similar trends observed around the world. In this post, we’ll discuss more about the Bank of England and the anticipated rate cuts.

The Bad News

The impetus for the expected bold new rate cuts is the bleak status of the U.K. economy, as manifested in data released this week. Here is a synopsis of what most troubles central bankers about the economy:

• Slumping consumer confidence
• Weakening euro-zone retail sales
• Threats of deflation
• Purchasing manager indexes for Great Britain and the 15-nation euro zone dipped to record lows
• Manufacturing sectors across Europe demonstrated a stark slowdown

Expected Actions

The Monetary Policy Committee of the Bank of England already rocked markets last week when it cut the key lending rate from 4.5% to 3%, which is the lowest rate since 1955. Central bankers are also concerned about the weakening pound, which has led some economists to predict the Bank of England will cut its key lending rate by one full point. This is double what economists were predicting last week before the new economic data were released today. Some firms say that an even bigger rate cut would not be a surprise given consumers’ rapidly eroding confidence in the country’s largest economic sector—manufacturing.

About the Bank of England

Similar to the Federal Reserve of the United States, the Bank of England establishes interest rates in order to curb inflation, issues banknotes, and strives to maintain stability in the financial system. The bank was founded in 1694 and was nationalized in 1946. The Bank stands at the centre of the U.K.’s financial system. A healthy economy through financial and monetary stability is the Bank’s primary goal.