Interest rate cut to new low of 0.5%

The Bank of England has cut the Bank rate to 0.5% and will inject £75 billion into the UK's monetary system to bolster the ailing economy.

The cut is the sixth in succession, and takes the rate to a new low in its 315-year history.

In a statement today, the Bank said that the cut alone would leave a "substantial risk" that the economy would undershoot the 2% target for inflation. The Bank's Monetary Policy Committee (MPC) had therefore decided to implement 'quantitative easing' in the financial system, by agreeing to buy assets under a scheme arranged with the chancellor earlier in the year.

"Nothing in life is ever certain, but these measures we think will work in the long-term," said Bank governor Mervyn King.

David Kern, chief economist at the British Chambers of Commerce (BCC), welcomed the cut and the continued "expansionary" direction of monetary policy.

"To be effective, the quantitative easing measures will have to be forceful as well as transparent to help calm the markets and lessen speculation against sterling," he said.

"The authorities must also spell out the roles played by the Bank of England, MPC and the Treasury, otherwise these measures will not work effectively."

Not all business groups welcomed the Bank's action, however. The British Retail Consortium said that it was "hard to see the point" of the action, while CBI chief economist Ian McCafferty said that it was "unlikely to have a dramatic impact on the cost or availability of credit".

IMAGE AP Photo/Sang Tan