The chancellor last night signalled the Bank of England is free to cut interest rates without fear of breaching its inflation targets, as the US slashed rates by half a percentage point to 1% in an attempt to ward off a deep recession.

Alistair Darling said the government remained committed to the Bank’s independent status and its remit to fight inflation. But he noted that the Bank had “discretion” over the time taken to meet its inflation targets and “can support, in line with its statutory requirement, the government’s wider economic objectives”.

The Bank’s monetary policy committee is widely expected to make a cut to its 4.5% rate similar to that of the US Federal Reserve at its meeting next week.

The FTSE 100 closed up just over 8% – its third-biggest percentage gain ever – ahead of the Fed’s move, which takes US rates down to a level only once equalled, amid the deflation scare of 2003 to 2004.

Financial Times