Interest Rates Slashed Across Europe

Updated from 7:33 a.m. EST

LONDON -- The Bank of England cut its base interest rate a full percentage point to 2% on Thursday, a month after chopping it by 1.5 percentage points, to cushion the impact of a domestic recession, while the European Central Bank cut its benchmark interest rate to 2.5%.

The ECB rate was previously at 3.25%, and some analysts had predicted it could have cut rates even lower in light of the financial meltdown.

The move by the ECB came less than an hour after the Bank of England slashed its interest rates to 2% -- the lowest since 1951 -- as it, like the ECB, works to ward off a prolonged recession.

The Swedish Riksbank also cut its key interest rate, by a record 1.75 percentage points to 2%, its biggest cut since it started using the repo rate as its key rate in June 1994.

The Bank of England rate is now at its lowest since 1951 and many economists are predicting it will fall further in coming months. It has never been below 2% since 1694, when the central bank was founded.

Bad economic news mounted just hours ahead of the central bank's monthly rate-setting announcement with the country's biggest mortgage lender reporting that house prices in Britain fell at their fastest monthly rate in 16 years during November and a car industry update showing that new car sales fell 37% from a year earlier.

The British pound fell to an all-time low against the euro and its weakest in more than six years against the U.S. dollar ahead of the announcement as traders hedged against the possibility of a bigger cut.

CBI deputy director-general John Cridland said he believed the bank will have to reduce rates to 1.5% during the winter.

>To order reprints of this article, click here: Reprints