Britain cuts key rate to historic low

Bloomberg

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The Monetary Policy Committee, led by Governor Mervyn King, trimmed the bank rate by a half point to 1.5 percent yesterday.

The reduction limits the Bank of England’s scope to fight the recession with its main policy tool. That may spur King to cooperate with Prime Minister Gordon Brown to inject money into the economy and the financial system through so-called quantitative easing.

"We may get another 50 basis-point cut next month as the data remain pretty grim," said Ross Walker, an economist at Royal Bank of Scotland Group. "We will see them move into quantitative easing, though they may need more time to figure out what they’re going to do next."

The Bank of England may soon have to join the U.S. Federal Reserve and the Bank of Japan in expanding its toolkit to fight the financial crisis.

U.S. officials, led by Fed Chairman Ben S. Bernanke, lowered their main interest rate close to zero in December and on Jan. 5 started buying mortgage-backed securities. Rates in Japan are also close to zero and the central bank has increased its emphasis on adding funds to the financial system.

The European Central Bank has cut its key interest rate by 1.75 percentage points to 2.5 percent since October.