Bank chops rates as City is split

The Bank of England has cut interest rates by 0.25%, although opinion seems divided on whether that's enough...

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Last Updated: 31 Aug 2010

As expected, the Bank’s Monetary Policy Committee voted this morning to cut rates by 0.25%, to 5.25% - showing that it’s concerned about a general slowdown in the economy, but also worried about inflation. And with fuel and commodity prices still sky-high, it’s perhaps no wonder.

It means that the Bank is taking a much less aggressive approach than the US Federal Reserve, which has been slashing rates like nobody’s business in recent weeks. In January it made an emergency cut of 0.75%, and then followed this up with another half-point cut last week (although some people reckon that was all Jerome Kerviel’s fault for causing the market turmoil on ‘Black Monday’).

Of course it won’t please everyone in the City. Some reckon that the Bank hasn’t done enough to stem the slowdown emanating from the US – arguing that the UK is now at risk of a major financial crisis as the City stutters and the housing market slows, but without any cash in the public coffers to tide us over.

Then again, others think that cutting rates more drastically would have been risky, given that all the signs seem to suggest that inflation could be on the rise. And then there’s another group that doesn’t seem quite sure either way. If the economists can’t even agree, who are we to judge?

One thing’s for sure: the problems in the financial markets are still a long way from over. Stock markets are continuing to jump around like scalded cats, and banks are still nervous about lending. In fact, all of the big institutions are being hit hard in the pocket – this morning Deutsche Bank said its profits slumped 48% in the third quarter (although at least there were no more sub-prime write-offs).

It just shows that those controlling the UK's purse-strings aren't like their showboating equivalents in the US Federal Reserve. When it comes to dramatic gestures, best leave it to the Americans. 

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