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BoE under severe pressure for interest rate cut

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by Kay Mitchell

The Bank of England is under severe pressure to cut interest rates this week after figures revealed that the service sector shrank in October.

The service sector, which makes for almost three quarters of output, fell for the sixth consecutive month and was at its lowest level since 1996, according to an index compiled by the Chartered Institute of Purchase and Supply.

Meanwhile, figures from the Office for National Statistics revealed manufacturing output fell for a seventh consecutive month in September – the longest run of monthly falls for almost 30 years.

As a result, most analysts believe that the Bank of England’s Monetary Policy Committee (MPC), which starts its meeting today, will cut rates by 0.5% to avoid a prolonged recession.

Last month, in a co-ordinated move with other banks, the Bank of England’s MPC slashed UK interest rates from 5% to 4.5%.

Central banks in the US, Japan and China have all cut interest rates in the last week in a bid to fight off a recession.

Many analysts believe that the Bank of England and European Central Bank will follow suit later this week with the Bank of England possibly opting for a 1% cut.

However, while a rate cut should be good news for homeowners, some lenders are yet to pass on the rate cut to borrowers.

Financial information provider, Moneyfacts.co.uk, recently reported that half of the UK’s mortgage lenders had failed to cut their standard variable rates (SVR) in line with the recent interest rate cut.

As a result, a group of more than 20 MPs has tabled a motion in parliament calling for all UK banks to pass on the benefits to customers.

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News posted: November 5, 2008

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