Bank of England Slashes Rates
November 6, 2008
Today saw the Bank of England discount rates by the largest margin since 1981, leaving the base rate standing at 3.00%. This marks the lowest level in over 50 years. In what was a hotly debated decision the BoE decided that against a weak economic backdrop a drastic 150bps cut was the correct coarse of action, the market had only been expecting a 75bps rate cut. Within the accompanying statement BoE Governor Mervyn King highlighted that “it is likely that the UK economy is entering a recession” leading the market to conclude that further rate cuts can be expected. Initially the Pound fell against the US Dollar by almost 1%, although upon further reflection the market assessed the BoE actions as affirmative, which subsequently allowed the GBP to rally 2% taking it up to a session high of 1.6039 versus the US Dollar.