July 11, 2003	Friday	Jumadi-ul-Awwal 10, 1424

LONDON, July 10: The Bank of England cut its benchmark interest rate by a quarter point to 3.50 per cent on Thursday to try to breathe new life into a sluggish global economic recovery.

The reduction, which wrong-footed a majority of economists, marked a dramatic start for the central bank’s new governor, Mervyn King, and takes rates to a new 48-year low.

Mr King, who chaired the monetary policy committee for the first time since his predecessor Sir Edward George retired last month, has previously been seen as a staunch inflation fighter, and the move should soften his reputation.

With the new chief at the helm, the nine-strong committee decided to act because “the global economic recovery has remained hesitant,” the central bank said in a statement.

“Although the preconditions for recovery remain in place, the prospect for external demand for UK output is weaker than previously expected.”

Output growth in Britain has recently been below trend, while slower consumer demand and subdued private investment have so far offset the impact of higher public spending, the central bank said.

“The fall in the sterling effective exchange rate since the start of this year should help underpin growth, but in recent weeks that fall has been partly reversed, reducing the prospective impact on inflation,” it added.

The move brings British interest rates closer in line with those in the United States and Europe.

In the United States the Federal Reserve has slashed rates to a 45-year low point of 1.0 per cent.

The British cut was the first since a 25-basis point reduction in February, and came as somewhat of a surprise to markets.

Analysts said it would also be unwise to bet against another reduction by the Bank of England in the coming months.

ECB RATES: The European Central Bank held its key interest rates steady as expected at its regular policy-setting meeting here on Thursday and appeared keen to dampen speculation it might cut them soon, despite persistent calls for action to help prop up the ailing euro-zone economy.

The ECB decided that its half-point reduction in euro-zone borrowing costs just a month ago should provide sufficient momentum for the economy for the time being.

Thus, the ECB held its central “refi” refinancing rate steady at 2.00 per cent, where it has been since June 5.

It also left its other two key rates — the deposit and marginal lending rates — unchanged at 1.00 per cent and 3.00 per cent, respectively.

Euro-area interest rates were “low by historical standards, both in nominal and real terms, thus lending support to economic activity and helping to safeguard against downside risks to economic growth,” ECB chief Wim Duisenberg told a news conference after the meeting.—AFP