The U.K. central bank reduced its key rate by the most since 1992, taking it to 3 percent. The European Central Bank lowered its benchmark by 50 basis points to 3.25 percent and Swiss policy makers cut their main lending rate by the same margin to 2 percent after an unscheduled meeting.
"It's absolutely staggering and deeply impressive,'' said Brian Hilliard, director of economic research at Societe Generale in London. "They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.''
Policy makers around the world are dashing to limit the damage from the global credit squeeze, cutting interest rates and pumping unlimited funds into the banking system. The International Monetary Fund said today the U.K. will be the worst performer among the Group of Seven economies next year, followed by Germany, the euro region's largest economy.
"The risks to inflation have shifted decisively to the downside,'' the Monetary Policy Committee said after today's decision. Policy makers "judged that a significant reduction in Bank Rate was necessary now in order to meet the 2 percent target'' for inflation.
ECB President Jean-Claude Trichet said in a press conference after today's decision that he can't rule out a further reduction in interest rates because the global financial crisis may lead to an extended economic slump.
"The intensification and broadening of the financial turmoil is likely to dampen global and euro-area demand for a rather protracted period,'' he said. "Price, cost and wage pressures should also moderate.''