Bank of England joins five other central banks in coordinated move, bringing UK rate down to 4.5%

Six central banks have cut interest rates by 0.5%, including the Bank of England.

The UK rate move had not been expected until Thursday, but interest rates have now been put at 4.5%, down from 5%. Rates were also cut by the US Federal Reserve from 2% to 1.5%,

In the first half-point cut and first emergency reduction in the UK since 9/11, the coordinated moves are designed to counterbalance the vicious deterioration in financial markets, and give some measure of reassurance to households.

The Council of Mortgage Lenders welcomed the cut. “No one is pretending the tough times are over yet,” said CML director general Michael Coogan, but he added: “All this decisive action augurs well for an improving market situation looking ahead.”

However, while Paul Guest, head of EMEA Research at Jones Lang LaSalle acknowledged “they could not have done anything else,” Stuart Law, chief executive at Assetz, said he believed the Bank of England needed to go further still.

If anything, there will be disappointment that this falls somewhat short, and I would urge the Bank to push forward with a full per cent drop

Paul Guest, head of EMEA Research at Jones Lang LaSalle

“If anything, there will be disappointment that this falls somewhat short, and I would urge the Bank to push forward with a full per cent drop, bringing rates down to 4% as early as this week,” he said.

Law added he “would not be surprised” if rates fell to between 3.5% and 3% by early next spring. “In the future, I believe this week will be seen as the final turning point in the credit crunch. It is just a pity that these significant actions were not taken months ago when the cost would have likely been lower.”

James Thomas, head of Residential at Jones Lang LaSalle, said he believed the cut was “little more than a sop to restore confidence in the short term”. He added: “Libor rates will remain high as banks continue to work through the deleveraging process.”

The European Central Bank also lowered its rate from 4.25% to 3.57%, while similar action was taken by the central banks of Canada, Sweden and Switzerland.

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