Rate cut rings City alarm bells

THE CITY was unnerved yesterday by the Bank of England's surprise decision to cut UK interest rates by half a percentage point to 6.75 per cent, the biggest single move in rates since February 1995.

Share prices tumbled in London as traders feared that the Monetary Policy Committee's bold move could reflect hidden difficulties in the financial system.

Sentiment was further undermined by a raft of grim economic news showing weaker manufacturing output and retail sales in October.

The FTSE 100 index ended the day down 143.1 points at 5,479.8, while the interest-rate cut also hit sterling, which was down almost a pfennig against the Deutschmark to close at DM2.756.

Neil Parker at Royal Bank of Scotland said: "There has been some speculation along the lines of: `What do they [the Bank] know that we don't?'".

New figures showing falling manufacturing output and retail sales, combined with several disappointing earnings announcements from leading UK companies, also contributed to the FTSE's slide.

Mr Parker said: "There is a crisis of confidence and manufacturers simply aren't selling enough."

A weaker-than-expected start to trading on Wall Street did not help UK market gloom. The Dow opened down 50 points, but later rebounded after encouraging remarks from Alan Greenspan, chairman of the US Federal Reserve. The Dow closed up 132.2 points at 8,915.47.

Mr Greenspan suggested there was some evidence of an easing of US credit conditions. Worries about a credit crunch - which occurs when credit is denied to financially sound institutions - played an important part in the Fed's recent decision to cut interest rates twice within the space of a fortnight.

Analysts speculated that evidence of tightening credit conditions in the UK could have been one factor in the Bank's decision to cut rates by 0.5 points. The Bank recently commissioned its regional agents to carry out a survey of local credit conditions.

In a statement released together with its decision on interest rates, the MPC said: "News about the international environment and the prospects for domestic activity have led the Committee to moderate its forecast for growth next year."

Michael Saunders, of Salomon Smith Barney, said: "The statement does not say that the MPC is reacting to a deterioration in borrowing conditions, although it is possible that this is a part of their worries about domestic activity."

New data showing falling manufacturing output and retail sales backed up the Bank of England's decision to plump for a 0.5-point cut rather than a quarter-point reduction, analysts said.

Figures from the Office for National Statistics revealed that industrial production fell by 0.6 per cent in September, while manufacturing output fell by 0.1 per cent in the third quarter of the year.

Adam Cole at HSBC Securities said: "The marginal fall in manufacturing output in the third quarter is almost certainly the beginning of a more marked downturn."

The Confederation of British Industry (CBI) announced that retail sales were on the whole lower in October 1998 than in October 1997.

According to the latest CBI distributive trades survey, 32 per cent of retailers said their sales were higher than a year ago, compared with 36 per cent saying they were lower. This gives a net balance of 4 per cent of retailers reporting a downturn.

Alastair Eperon of the CBI said: "The survey continues to suggest that underlying growth in retail trade is losing momentum."

Meanwhile, sales of new cars fell by 0.9 per cent last month compared with sales in October 1997, according to released by the Society of Motor Manufacturers and Traders.

PROMOTED VIDEO
News
Teeth should be brushed twice a day to prevent tooth decay
education
News
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
news
Sport
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League - but Mourinho is short of strikers
News
Those who were encouraged to walk in a happy manner remembered less negative words
science
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
News
Renee Zellweger as Bridget Jones
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
tech

Board creates magnetic field to achieve lift

News
There have been various incidents of social media users inadvertently flouting the law
news

Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
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

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Lonely Planet’s Best in Travel 2015

UK city beats Vienna, Paris and New York to be ranked seventh in world’s best tourist destinations - but it's not London