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BANK OF ENGLAND CUTS INTEREST RATES CUT BY 1/2 PER CENT

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The Bank of England today cut interest rates by one half per cent. Commenting on the move, the Chancellor said: 'Fo...
The Bank of England today cut interest rates by one half per cent. Commenting on the move, the Chancellor said: 'Following consultation with the Governor of the Bank of England, I have decided that a further reduction in interest rates of 1/2 per cent is sensible and fully consistent with the Government's inflation target.'

Since interest rates were last reduced in January 1993: -M4 growth has remained close to the bottom of its monitoring range; -M0 growth has been relatively stable recently.

Although the growth rate has continued to exceed the 0-4% monitoring range, in part this is the expected result of previous interest rate reductions;

house prices have risen only slightly, although prices of financial assets have increased more quickly;

-the exchange rate index is now around 3% higher than at the end of January;

there have been significant reductions in interest rates in other member states of the European Union;

the growth rate of underlying average earnings has fallen from 4 3/4% to 3%;

-underlying inflationary pressures remain weak and inflation forecasts generally have been scaled back significantly;

-market inflation expectations implied by the yield differential between conventional and index-linked gilts have fallen by around 1/2%; and business surveys too confirm that inflation expectations have continued to fall.

Weighing up these factors, and taking full account of the measures he would announce in the budget Mr Clarke said he would announce in the Budget on 30 November, he had decided that a 1/2% cut in interest rates is warranted. 'I asked the Governor to implement this decision at the time he judged most appropriate'.

Interest rate decisions will continue to be determined on the basis of the full range of monetary indicators and the Government's inflation target. But from now on the precise timing of interest rate changes will be a matter for the Bank to decide.'

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