South African Businessplace

LONDON - Bank of England policymakers voted 9-0 to slash British interest rates by a third to 3.00 percent earlier this month, minutes of their meeting revealed.

The BoE had on November 6 slashed its key lending rate from 4.5 percent to the lowest level in more than half a century, a sign according to economists of a deep recession ahead for Britain.

The central bank's huge rate cut had taken markets totally by surprise and left borrowing costs at their lowest level since 1955.

The size of the reduction - 1.5 percentage points - was the biggest since March 1981 when rates were slashed by two percent under a different regulatory framework.

The BoE's central task is to keep inflation at the British government's set target of 2.0 percent.

In its minutes published on Wednesday, the bank said that its nine policymakers “judged that an immediate reduction in Bank Rate of 1.5 percentage points to three percent was necessary to meet the two-percent target for inflation in the medium term.”

British inflation came off a 16-year high to 4.5 percent in October as the cost of oil fell sharply, official data had showed on Tuesday.

With inflation set to tumble even further in coming months, analysts said Britain risked deflation, or a protracted general fall in prices, as well as historically-low interest rates in 2009.

The Consumer Price Index (CPI) annual inflation rate - the government's target measure - dropped from a 16-year high of 5.2 percent in September, the Office for National Statistics had said.

The BoE had last week said the British economy was probably already in recession and faced a risk of deflation as the global financial crisis takes its toll.

The economy is on the verge of a recession after contracting for the first time since 1992 in the three months to September by 0.5 percent.

A subsequent and widely expected further contraction in the fourth quarter will put the economy technically into recession.

AFP