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Bank of England Cuts Interest Rate

April 8, 1999

LONDON (AP) _ The Bank of England cut its base lending rate by a quarter percentage point to 5.25 percent on Thursday, hoping to stimulate economic growth at a time of low inflation.

The Bank’s Monetary Policy Committee voted to reduce its base rate on loans to banks to a five-year low from 5.5 percent.

The decision came as a relief for manufacturers and labor unions, who have been hurt by the high value of the British pound, and also for homeowners paying mortgages as it could lead to lower consumer rates.

The British Chambers of Commerce gave the cut a cautious welcome, noting that British interest rates remain higher than those of most other European countries.

``With the economy still fragile and inflationary pressures flat, a more significant cut was both workable and necessary,″ it said in a statement.

Alan Armitage, chief economist at the Engineering Employers’ Federation, agreed, saying that British companies were at a competitive disadvantage. European competitors still could borrow more cheaply, and they could sell their exports for less because their currencies were weaker than the pound, he said.

However, The Royal Bank of Scotland took a contrary view and called the rate cut a mistake. It said the Bank of England has gone too far in easing access to credit and will have to reverse course next year by raising rates.

In an unusual move, the Bank of England gave no explanation for the cut, and the Treasury declined to comment.

Inflation has slipped below 2.5 percent, however, and analysts said the central bank may have felt it could safely resume its downward push on rates without stoking upward pressure on prices.

The Bank of England has slashed the base rate by 2.25 percent in the past seven months.

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