Bank of England cuts interest rates

The Bank of England today threw a lifeline to exporters struggling due to the high value of sterling, cutting interest rates to their lowest level for more than 20 years.

The Bank's nine-member Monetary Policy Committee voted to take a quarter point off base rates, reducing them from 5.25% to 5%.

The cut - the seventh in nine months - takes the cost of borrowing to its lowest level since October 1977 when James Callaghan's Labour government was in power.

It is thought that today's decision could again have been finely balanced.

After its May meeting - when members voted five-to-four to leave rates on hold - the MPC warned that it could have to resume cuts if the pound remained at its high value against the euro.

Since then - despite a rally in recent days - the euro has continued its remorseless slide on the foreign exchanges, leaving exporters struggling to compete in European markets.

Most City analysts believe however that today's reduction is likely to be the last in the current cycle and the next move could be a rise as the economy picks up later in the year. The MPC said: "Taking into account all the evidence on the inflation outlook, the committee judged that it is now more likely that inflation will undershoot the 2.5% target and therefore voted to reduce the Bank's repo rate by 0.25%."

Analysts will be able to get a fuller view of the MPC's thinking when the minutes of this week's meeting are published on June 23.

Useful link
Minutes of the Monetary Policy Committee's meetings