'A huge moment in monetary history'

Last Modified: 06 Nov 2008
By: Faisal Islam

Faisal Islam, Channel 4 News economics correspondent, reponds to today's announcement

"This is a monetary neutron bomb. We've never seen anything like this in recent history. It's May 1954 that interest rates were as low as 3 per cent.

"While the Bank of England has been independent, there's never been a vote of more than 0.75 per cent. Yet a majority of the committee has voted for 1.5 per cent to come off. A massive gamble.

"In the statement to accompany the announcement, there's some interesting language. They refer to their regional agents - the people in the economy who aren't seeing the big figures but it gives details on the ground. Their regional agents say things are pointing to a continued severe contraction in the near term.

"And they also complain that there's a very marked deterioration in the outlook for economic activity. They're obviously less worried about inflation now, even though inflation's at 5.2 per cent.

"Seeing through this, they're chosing to move now so they can explain it with the November inflation report that's coming out next Wednesday.

"The key question here is: is this going to get passed on? The CML have suggested in advance that all of it won't get passed on. Many mortgages have a system within them where you cannot lower the interest rate below, for example, 3 per cent.

"So there's lots of questions about whether this is going to work. A huge gamble and a huge moment in Britain's monetary history."