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Fed cut puts pressure on Bank of England

An additional 0.75 per cent interest rate cut from the US Federal Reserve was announced yesterday.

The latest major reduction from the American interest rates-setting body, aimed at staving off the national economic slowdown, means that the rate has plunged from 5.25 per cent to just 2.25 per cent over recent months.

An interest rate cut next month from the Bank of England might also have been made more likely, as the UK economy is facing similar pressures to those in the US.

Although the situation is more severe in America, in both countries house price inflation has been checked and home repossessions are on the up.

The ongoing credit crunch has also made it much harder for lenders to finance loans for consumers - meaning that financial firms in the UK and US have become much more selective about who they offer credit to.

It is hoped that the latest reduction will alleviate these problems, with home loans and unsecured loans are likely to be made cheaper as lenders pass on the rate cut - encouraging both lenders and borrowers to offer and use credit.

Speaking to the Daily Mail, chief economist at ING Mark Cliffe commented: "The Bank of England [is] likely to move rather faster on cutting interest rates than we anticipated previously."

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