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Experts fear rate cut could send wrong message

A day before the Bank of England’s Monetary Policy Committee was scheduled to make its latest monthly decision, it announced it was reducing the base rate by 0.5% to 4.5%, with the Federal Reverse in the US and the European Central Bank also reducing their rates by 0.5%.

Prime Minister Gordon Brown’s spokesman denied the Government had put pressure on the Bank of England to take part in the co-ordinated reduction of interest rates.

Partner in charge at the Cardiff office of accountancy firm PKF, Tim Smith, said: “0.5% is bold, and there has not been such a dramatic cut since 9/11 in America. It is hoped the co-ordinated move to cut interest rates will re-ignite confidence in the failing economy – especially in light of the £50bn rescue plan for banks announced by the Chancellor.

“However, there is a danger that this move will send out distress signals, which could potentially be just as damaging.” Nigel Jones, director of West Wales estate agency John Francis said: “It is a surprise that the interest rate cut happened a day earlier than expected, and it is significant that cuts have been made in six central banks, indicating that this is a global problem that requires a global answer”.


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