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Angela Balakrishnan
The Bank of England unanimously agreed to slash interest rates to 2%, their lowest level in 57 years at its meeting earlier this month and considered an even bigger cut to help rescue the British economy from the depths of a long recession.
Minutes from the meeting, released today, revealed that the nine members of the Bank of England's monetary policy committee did not even consider lowering rates by any less than 100 basis points, such was their concern over the state of the economy.
The rate reduction earlier this month followed a run of awful data from all areas of the economy and was an attempt to bring some relief to businesses and households in the lead up to what is expected to be a grim Christmas.
The statement today showed that a bigger reduction in borrowing costs was discussed, which would have taken rates below 2% for the first time since the Bank was set up more than 300 years ago. But policymakers felt that this might have shocked the markets.
"There was a risk that going further could cause an excessive fall in the exchange rate. There was also a risk that an unexpectedly large cut could undermine confidence in the economy more widely," the minutes said.
Lower interest rates in the UK have already sent sterling spiralling lower and today it hit a fresh record low against the euro, taking the currency closer to parity.
The MPC appeared to welcome the sharp fall in sterling in recent weeks, saying it should support the economy by boosting export growth while the fall in the oil price would lift consumer spending power.
The minutes suggest that the Bank rate will continue to head downwards and could soon be near zero, especially after the US Federal Reserve cut rates from 1% to 0.25% - lower than in the Great Depression.
"It is consistent with a fall by another 100 basis points in January. It will probably trough at 0.5% or lower," said Amit Kara at UBS.
Britain has seen interest rates fall steeply since the MPC began its cuts in earnest in October ,with co-ordinated action from central banks around the world to save the banking system from collapse.
This month's reduction from 3% to 2% means rates are at their lowest level since 1951, and their joint lowest level ever. They had been at 2% for 19 years bar a blip upwards for a couple of months as war broke out in 1939.
In today's minutes the MPC also noted the importance of getting banks lending again but added that interest rates alone would not be enough to tackle limited credit availability.
"Further measures to underpin lending growth would be needed, building on the government's package announced in October to recapitalise and guarantee funding to the banks," they said.
The rate reduction represented a victory for MPC member David Blanchflower who spent all this year urging his colleagues to cut rates sharply because of the danger of recession. His colleagues preferred to leave rates high, however, as they were focused on inflation.
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