Rate cut fails to impress markets

The Bank of England cut interest rates yesterday to a 37-year low in an attempt to boost confidence dented by last week's terrorist outrage.

But the reduction of base rates from 5 to 4.75 per cent disappointed the City, which had hoped the Bank's Monetary Policy Committee would follow the example of the US Federal Reserve and European Central Bank by ordering a half-point cut. The MPC said it was ready to take further action if necessary.

The FTSE 100 index was down 126 points at one time yesterday although it recovered to close down 50 points, 1 per cent, helped by a modest early rise on Wall Street. The Dow Jones, which plunged almost 700 points on Monday, closed last night down 0.2 per cent at 8903.4.

In Japan, the Nikkei recovered from the 18-year low it hit on Monday to rise by 2 per cent. But European stock markets picked up the gloom from London with French shares falling more than 1 per cent. The Bank of England said the impact on the British economy of the American attacks could not yet be assessed but added: "The direction of that impact and the associated risks are clear."

Gordon Brown, the Chancellor, backed the Bank, saying the interest-rate cut would help the economy. "I think we've seen over the last few days decisive action, first of all to keep the markets moving, to provide liquidity to the system, and then co-operative action around the world," he said.