Interest rates in the UK have been cut by 0.25% to 5.5% as the Bank of England reacts to signs that the economy is slowing down.
Analysts believe the decision was a tough call for the Bank’s Monetary Policy Committee (MPC), possibly the hardest it has made in the past ten years.
Figures over the last few weeks have indicated that economic conditions are deteriorating and have raised expectations that a rate cut was imminent.
BBC economics editor Evan Davis said that the decision was aimed at making sure the economy did not slow too quickly.
“It is about making sure that the slowdown, which seems to be happening, does not get out of control,” he said.
Interest rates have been raised five times since the middle of 2006, but the Bank has not made any changes since July this year.
However, lower levels of high street spending and recent problems in the banking sector appear to have pushed the MPC into action.
In an interview with the BBC, Peter Spencer, chief economist of Ernst and Young's Item Club, said: “The credit crunch - which seemed to be resolving itself in October - has recently taken a nasty turn for the worse.”
However EEF, the manufacturers' organisation welcomed the rate cut.
“Though manufacturing remains in good health a number of warning lights for the economy are now flashing amber,” said Steve Radley, EEF's chief economist.
“This is a sensible pre-emptive move which will reassure business that the bank is on the case and help to cushion the economy from the worst effects of instability in the financial markets,” he added.
© Crimson Business Ltd. 2007