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UK interest rates trimmed to 5.5% UK interest rates trimmed to 5.5%
(10 minutes later)
The Bank of England has cut UK interest rates to 5.5% from 5.75% amid signs that the economy is slowing.The Bank of England has cut UK interest rates to 5.5% from 5.75% amid signs that the economy is slowing.
Expectations of a rate cut had risen in recent days after figures indicated that economic conditions had deteriorated over the past few weeks.Expectations of a rate cut had risen in recent days after figures indicated that economic conditions had deteriorated over the past few weeks.
Analysts had said that the Bank's decision was one of the hardest it had faced during the past decade.Analysts had said that the Bank's decision was one of the hardest it had faced during the past decade.
This was because of concerns about inflation and the impact that a rate cut may have on price growth.This was because of concerns about inflation and the impact that a rate cut may have on price growth.
Bleaker pictureBleaker picture
The cut in the cost of borrowing by the bank's Monetary Policy Committee (MPC) was the first since August 2005.The cut in the cost of borrowing by the bank's Monetary Policy Committee (MPC) was the first since August 2005.
Interest rates have risen five times since the middle of last year, but the Bank had kept rates on hold since July.Interest rates have risen five times since the middle of last year, but the Bank had kept rates on hold since July.
The Bank has been keen to keep price growth under control, and many analysts had predicted that they would want to see oil and food cost pressures abate before moving to lower interest rates.The Bank has been keen to keep price growth under control, and many analysts had predicted that they would want to see oil and food cost pressures abate before moving to lower interest rates.
However, surveys this week have shown falling house prices and a slump in consumer confidence.However, surveys this week have shown falling house prices and a slump in consumer confidence.
It is about making sure that the slowdown, which seems to be happening, does not get out of control Evan DavisBBC economics editorIt is about making sure that the slowdown, which seems to be happening, does not get out of control Evan DavisBBC economics editor
On Wednesday, Halifax reported that UK house prices dropped 1.1% in November, saying that higher borrowing costs and increased mortgage repayment costs were taking their toll.On Wednesday, Halifax reported that UK house prices dropped 1.1% in November, saying that higher borrowing costs and increased mortgage repayment costs were taking their toll.
At the same time, a report from rival lender Nationwide showed that its measure of consumer confidence had seen the biggest monthly decline since the survey began in 2004, sliding by 12 points to 86 last month.At the same time, a report from rival lender Nationwide showed that its measure of consumer confidence had seen the biggest monthly decline since the survey began in 2004, sliding by 12 points to 86 last month.
A number of retail and leisure companies have also warned of problems and that they are seeing a slowdown in demand on the High Street.A number of retail and leisure companies have also warned of problems and that they are seeing a slowdown in demand on the High Street.
BBC economics editor Evan Davis said that Thursday's rate cut was aimed at making sure the economy did not slow too quickly.BBC economics editor Evan Davis said that Thursday's rate cut was aimed at making sure the economy did not slow too quickly.
"It is about making sure that the slowdown, which seems to be happening, does not get out of control," he explained."It is about making sure that the slowdown, which seems to be happening, does not get out of control," he explained.
'Sensible move'
Another of the key factors behind the rate cut was an increase in Libor - the rate at which banks to lend to one another.
Libor has has been rising because of problems in the US mortgage market and the subsequent credit crunch, and the fear is that this will make banks less willing to lend to consumers and companies.
"The credit crunch - which seemed to be resolving itself in October - has recently taken a nasty turn for the worse," said Peter Spencer, chief economist of Ernst and Young's Item Club.
EEF, the manufacturers' organisation welcomed the rate cut.
"Though manufacturing remains in good health a number of warning lights for the economy are now flashing amber," said Steve Radley, EEF's chief economist.
"This is a sensible pre-emptive move which will reassure business that the bank is on the case and help to cushion the economy from the worst effects of instability in the financial markets," he added.