Thursday, November 06, 2008

The Bank of England Slashes Rates by 150 Basis Points

The Bank of England slashed interest rates by 1.5 percentage points to 3 per cent in a wholly-unexpected move on Thursday as it cited “marked deterioration in the outlook for economic activity at home” in the teeth of “the most serious disruption for almost a century” in the global banking system.

The Bank noted that in the UK, output fell sharply in the third quarter and business surveys and reports by the Bank’s regional agents pointed to “continued severe retraction” in the months ahead. It cited faltering consumer spending as household budgets were squeezed and credit from external sources dried up.

That's a dramatic move by a central bank who typically moves 25 or 50 basis points at a time. Unfortunately, it's not the cost of money that is the problem right now. You can make money as cheap as you want, but if people chose not to borrow and banks chose not to lend, then the cost of money is a non-issue.

Markets still look weak in anticipation of the jobs number tomorrow.

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