Germany spurs rate cuts

Prospects for a full one point cut in base rates improved sharply yesterday after the German Bundesbank announced an unexpected cut in its key rates, prompting a wave of reductions across Europe, writes Peter Torday.

But City analysts still expect Kenneth Clarke to wait until the Budget on 30 November to offset higher taxes.

Roger Bootle, chief economist of Midland Global Markets, said: 'The lower is the general level of European rates, the more the Chancellor can contemplate a larger reduction in base rates. There must be a realistic chance of a 1 per cent cut, and there is a really strong case for going for more than 1 per cent in one single go.'

Andrew Sentance, outgoing director of economics at the Confederation of British Industry and one of the Chancellor's 'seven wise men', said: 'This strengthens our hope that we'll see 5 per cent base rates by the year end.'

The Bundesbank, saying the threat of inflation was receding, lowered its key discount rate by half a point to 5.75 per cent, bringing it below British base rates for the first time since last autumn.