UK's BoE cuts interest rate

October 4, 2001 Posted: 1120 GMT

LONDON (CNN) -- The Bank of England cut interest rates by a quarter point to 4.5 percent on Thursday, the sixth time this year, to bolster confidence.

The bank, which trimmed rates by a quarter point on September 18, was widely expected to act again to match the emergency half-point rate cut last month by the U.S. Federal Reserve, European Central Bank and other central banks.

While many analysts believe the UK economy is more resilient than other leading industrialised countries, the BoE was expected to trim rates in a worldwide attempt to boost confidence after the terror attacks on the U.S.

And the Fed cut rates again on Tuesday by half a percentage point to 2.5 percent, its lowest level in nearly 40 years. The cut is the ninth this year and the second since the terrorist attacks.

The BOE's Monetary Policy Committee issued a statement after the cut saying that while the impact of the attacks on the British economy was likely to be less than on that of the U.S, it was concerned about confidence here.

"The weaker world outlook and increased uncertainty have set back UK business and consumer confidence, and may, for a time, restrain business and household spending," said the bank.

Prior to the attacks, the BoE trimmed rates four times this year in quarter-point steps to 5 percent as the global economic slowdown pushed companies to cut jobs in the UK and internationally.

"Of the Group of Seven economies the UK is in the best shape but there is a risk to the downside," Ross Walker, economist at the Royal Bank of Scotland, told CNN. "There's not much data post September 11. A quarter point cut as a precautionary measure will not be too much of a risk."

British manufacturers are suffering worse conditions than in the country's last recession a decade ago and expect to shed more than 300,000 jobs this year and next, the Engineering Employers' Federation said on Tuesday.

British Airways, Europe's biggest airline, is shedding 7,000 jobs. About 5,200 are a direct response to a sharp drop in passenger traffic following the events of September 11. Its rival Virgin Atlantic will axe 1,200 posts.

Britain's economy is set to grow around 2.0 percent this year, according to the Bank of England, below the country's average annual growth rate over the past four decades, which is around 2.3 percent.

If the monetary policy committee of the BoE does decide to trim rates to 4.5 percent, that would be the lowest since 1964. Market watchers expect the BoE to cut interest rates once more before Christmas.

But some analysts say the world's fourth biggest economy does not need another rate cut at this time.

"We're not looking for a rate cut," John Butler, economist at Dresdner Kleinwort Wasserstein, told CNN. "The UK does not need it. House prices and retail sales are holding up well. This island is relatively strong but we do expect another rate cut in coming months."

House prices in Britain were unchanged in September to stand 8.5 percent higher than a year earlier, said the Halifax, Britain's biggest mortgage lender. While its rival Nationwide Building Society said house prices rose 2.8 percent on the month in September.

Retail sales growth in Britain jumped to its highest level in five years last month despite of the attacks on the U.S., the Confederation of British Industry said on Wednesday. The CBI said 62 percent of retailers reported sales were higher, while only 8 percent said sales were down.

"The attacks in the United States may have dented UK consumers' confidence but so far there is little evidence of any effect on their spending," said the CBI's Alistair Eperon.

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