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.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
Mark Wright and Bianca Miller in the final of The Apprentice
tvMark Wright and Bianca Miller fight for Lord Sugar's investment
Arts and Entertainment
X Factor winner Ben Haenow has scored his first Christmas number one
music
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
PROMOTED VIDEO
News
File: James Woods attends the 52nd New York Film Festival at Walter Reade Theater on September 27, 2014
peopleActor was tweeting in wake of NYPD police shooting
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
News
i100
Extras
indybest
News
peopleLiam Williams posted photo of himself dressed as Wilfried Bony
Sport
Martin Skrtel heads in the dramatic equaliser
SPORTLiverpool vs Arsenal match report: Bandaged Martin Skrtel heads home in the 97th-minute
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
The Apprentice finalists Mark Wright and Bianca Miller
tvBut who should win The Apprentice?
News
The monkey made several attempts to revive his friend before he regained consciousness
video
Extras
indybest
News
Elton John and David Furnish will marry on 21 December 2014
peopleSinger posts pictures of nuptials throughout the day
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
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

Carlton Senior Appointments: Private Banking Manager - Intl Bank - Los Angeles

$200 - $350 per annum: Carlton Senior Appointments: Managing Producer – Office...

Carlton Senior Appointments: San Fran - Investment Advisor – Ind Advisory Firm

$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick