Interest rates were cut to their lowest level in 53 years yesterday with clear indications of more cuts to come, as the International Monetary Fund forecast that the British economy would suffer a downturn next year on a par with the early 1990s recession.

The Bank of England surprised everyone by cutting its official rate by 1.5 percentage points to 3%; a cut three times larger than any seen since the Bank’s monetary policy committee was established in 1997.

An important part of the Bank of England’s explanation led investors to expect at least another percentage point cut in rates to 2% by April, a rate not seen since the emergency monetary policy conditions of the second world war. Urging banks to pass on the full rate cut, Yvette Cooper, chief secretary to the Treasury, said that having sought government assistance, “it is important that the banks do their bit to support the economy now”.

The Bank’s dramatic decision was followed by a half a percentage point cut by the European Central Bank.

Financial Times