Bank of England cuts quarter-point off interest rates

The Bank of England has shaved a quarter-point off interest rates.

The decision by the Bank's nine-member Monetary Policy Committee to reduce the official cost of borrowing from 6% to 5.75% brings to an end 12 months of interest rate stability.

The cut - the first for 20 months - comes as a welcome relief to industry, unions and homeowners, despite having been widely forecast by City analysts.

The Bank has come under increasing pressure to act since last month's two aggressive half-point rate cuts by the US Federal Reserve to try to revive the flagging American economy.

Leaders of British industry and unions argued that rates had to come down on this side of the Atlantic in order to bolster confidence and prevent the US slowdown spreading to the British economy.

Some of the more hawkish MPC members had resisted pressure for a cut, cautioning that they should wait to see evidence that the UK economy was also slowing.

However, after today's decision, most analysts believe that borrowing costs will continue to come down, with more cuts in the pipeline.

Kate Barker, chief economist at the Confederation of British Industry, says: "This cut has come at the right time. Firms are finding the economic tea-leaves harder than usual to read.

"Companies needed this cut to bolster their confidence and to sustain investment, which is vital to the UK's long-term future. Low inflation gives room for a cut now without damaging stability. "

Ms Barker adds: "Scope for further cuts will depend critically on whether or not tighter labour market conditions start to push up wages, and on a cautious Budget package in March."