Blue chips soar on rate cut

Blue chip shares celebrated the Bank of England's decision yesterday to cut interest rates for the sixth time this year by rallying to their strongest position since the terrorist attacks of September 11.

In an attempt to restore confidence damaged by the attacks, the Bank once again chopped borrowing costs by a quarter of a percentage point to 4.5% - their lowest since 1964 - and the FTSE 100 closed up 134.4 at 5016.2.

The key index is now 11.6% above its post-attack low, recorded on September 21, and is nudging towards the 5100 level it stood at just before the attacks threw the global economic outlook into turmoil and prompted concerted action from central banks worldwide to prevent panic.

Bank, telecoms and tech shares were already surging ahead of yesterday's Bank of England announcement, boosted by reassuring statements from US tech group Cisco Systems and PC manufacturer Dell. A "buy" recommendation on BT from Deutsche Bank also helped improve sentiment.

"The low of just above 4200 that we saw almost two weeks ago feels a long way away now," said one equity dealer. "A lot of people and institutions seem to be getting worried that they may have missed the bottom of this."

The Dow Jones index lost 62.90 points on the day's trade, closing at 9060.88. The Nasdaq rose 16.71 points to 1597.52, helped by the Dell update.

Some 2.8bn shares changed hands as buyers moved back in, looking for bargains and covering short positions.

Dell said it saw demand return more quickly than it expected following the attacks, and commented that its business model has put it in a position that is "better than it's ever been".

Threadneedle Street's decision to cut rates for the second time since the attacks came within 48 hours of a half-percentage point cut by the Federal Reserve, and was widely welcomed by industry leaders.

"The Bank has made the right decision," said Ian McCafferty, chief economic adviser at the CBI. "Even before September 11, survey evidence suggested that the economy was weakening. Since the tragedy we have seen the deterioration in trading conditions in the US and elsewhere in Europe, coupled with job cuts in the UK."

In a statement accompanying the decision, the Bank admitted the outlook remained uncertain: "The consequences of the terrorist attacks for the UK and the world economy are still unclear," it said.

The Bank added that the impact on Britain appeared to be less severe than for the US, "but 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".

But with more than a thousand extra layoffs announced yesterday, some union leaders accused the Bank of not doing enough to bail out the battered economy.

Roger Lyons, general secretary of the manufacturing science and finance union, said: "The quarter-point cut in interest rates has done nothing to stem the tide of job losses. The cut represents not caution but cowardice in the face of the current crisis."