Hopes rise that Bank will follow twin US rate cuts

THE SURPRISE decision of the US Federal Reserve last night to cut two key US interest rates by 0.25 percentage points intensified speculation that the Bank of England would next month follow suit and reduce UK rates again.

The US stock market soared after the Fed took the unusual step of cutting rates in advance of its regular monthly meeting, citing "growing caution by lenders and unsettled conditions in the financial market". The Dow Jones Industrial Average closed up 330.58 points at 8,299.36.

Yesterday was the second time the Fed, led by chairman Alan Greenspan, has cut US interest rates in recent weeks. A fortnight ago it cut the US funds rate by 0.25 points, a move which was poorly received by the market, which hoped for a larger cut.

Last night, by contrast, the Fed's decision to trim the funds rate by a further quarter point to 5 per cent as well as to cut the discount rate by 0.25 points to 4.75 per cent took the markets by surprise. The rate cuts are expected to have positive effects in the London stock market today .

All eyes in the City will now be on the Bank of England's Monetary Policy Committee (MPC), which next meets to set UK interest rates in early November.

Earlier yesterday Eddie George, the Bank of England Governor, fanned speculation about further reductions in UK rates when he indicated that a weak pound would no longer be a barrier to rate cuts.

His comments, combined with evidence from the British Chambers of Commerce (BCC) of a marked services sector slowdown, sent sterling almost four pfennigs lower against the Deutschmark.

The Governor also said he agreed with Mr Greenspan that, given the fragile market environment, policymakers had to be particularly alert. Giving evidence to MPs on the Treasury Select Committee, Mr George welcomed recent falls in sterling. He said: "It is not enough for the sectors that are suffering, but it is a move in the right direction."

Previously Mr George and other MPC members had expressed concern that rate cuts would prompt a sharp fall in the pound, which, in turn, could generate inflationary pressure.

Rate cut speculation knocked the pound from DM2.803 on Wednesday evening to DM2.767 by close of trade yesterday.

Mr George told MPs that, despite media speculation, recent comments about the UK economy made by Chancellor Gordon Brown had not influenced the MPC in any way.

The Governor said the Chancellor had been "absolutely scrupulous" in his dealings with the bank. "He has had lots of opportunities to have a nudge, nudge, wink, wink, word in your ear. But he has not done that at all."

PROMOTED VIDEO
Sport
Neil Warnock
football'New' manager for Crystal Palace
News
peopleGerman paper published pictures of 18-month-old daughter
Arts and Entertainment
'A voice untroubled by time': Kate Bush
musicKate Bush set to re-enter album charts after first conerts in 35 years
Sport
Angel Di Maria poses with Louis van Gaal after signing for Manchester United
sport
Arts and Entertainment
BBC series 'Sherlock' scooped a hat-trick of awards on the night. Benedict Cumberbatch received the award for Actor, Miniseries or Movie ('Sherlock: His Last Vow') while Martin Freeman won the award for Supporting Actor, Miniseries or Movie. Neither actor was present to collect their awards
tv
Life and Style
tech
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Client Services Executive / Account Executive - SW London

£23000 - £26000 per annum: Ashdown Group: Account Executive / Client Services ...

PA to CEO / Executive Secretary

£36000 - £38000 per annum: Ashdown Group: Executive PA to CEO & Executive Dire...

Generalist HR Administrator, Tunbridge Wells, Kent - £28,000.

£25000 - £28000 per annum: Ashdown Group: Generalist HR Administrator - Tunbri...

Management Accountant

£30-35k + Excellent Benefits: Guru Careers: We are seeking a Management Accoun...

Day In a Page

Kate Bush, Hammersmith Apollo music review: A preamble, then a coup de théâtre - and suddenly the long wait felt worth it

Kate Bush shows a voice untroubled by time

A preamble, then a coup de théâtre - and suddenly the long wait felt worth it
Robot sheepdog technology could be used to save people from burning buildings

The science of herding is cracked

Mathematical model would allow robots to be programmed to control crowds and save people from burning buildings
Tyrant: Is the world ready for a Middle Eastern 'Dallas'?

This tyrant doesn’t rule

It’s billed as a Middle Eastern ‘Dallas’, so why does Fox’s new drama have a white British star?
Rachael Lander interview: From strung out to playing strings

From strung out to playing strings

Award-winning cellist Rachael Lander’s career was almost destroyed by the alcohol she drank to fight stage fright. Now she’s playing with Elbow and Ellie Goulding
The science of saturated fat: A big fat surprise about nutrition?

A big fat surprise about nutrition?

The science linking saturated fats to heart disease and other health issues has never been sound. Nina Teicholz looks at how governments started advising incorrectly on diets
Emmys 2014 review: Can they genuinely compete with the Oscars

Can they genuinely compete with the Oscars?

The recent Emmy Awards are certainly glamorous, but they can't beat their movie cousins
On the road to nowhere: A Routemaster trip to remember

On the road to nowhere

A Routemaster trip to remember
Hotel India: Mumbai's Taj Mahal Palace leaves its darker days behind

Hotel India

Mumbai's Taj Mahal Palace leaves its darker days behind
10 best pencil cases

Back to school: 10 best pencil cases

Whether it’s their first day at school, uni or a new project, treat the student in your life to some smart stationery
Arsenal vs Besiktas Champions League qualifier: Gunners know battle with Turks is a season-defining fixture

Arsenal know battle with Besiktas is a season-defining fixture

Arsene Wenger admits his below-strength side will have to improve on last week’s show to pass tough test
Pete Jenson: Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought

Pete Jenson: A Different League

Athletic Bilbao’s locals-only transfer policy shows success does not need to be bought
This guitar riff has been voted greatest of all time

The Greatest Guitar Riff of all time

Whole Lotta Votes from Radio 2 listeners
Britain’s superstar ballerina

Britain’s superstar ballerina

Alicia Markova danced... every night of the week and twice on Saturdays
Berlin's Furrie invasion

Berlin's Furrie invasion

2000 fans attended Eurofeurence
‘It was a tidal wave of terror’

‘It was a tidal wave of terror’

Driven to the edge by postpartum psychosis