Bank Of England Willing To Bring Down Interest Rates To Zero To Prevent Deeper Recession

November 12, 2008 11:28 a.m. EST

London, England (AHN) - If last week's unprecedented 1.5 percentage point reduction in benchmark interest rate made by the Bank of England shocked the global finance community, Tuesday's policy pronouncement by Bank of England Governor Mervyn King will surely send financial tsunamis around the world. King said the bank is prepared to bring down lending rates to zero to prevent the further slump of the British economy into recession.

King made the statement after the Bank of England issued its forecast the U.K. economy may shrink by 2 percent in 2009. Other major economic indicators also painted a bleak picture for the Britain.

Although inflation may go down to less than 1 percent following the reduction of crude oil price in the international market, the pound is on a six-year low against the dollar, while unemployment is on an 11-year high at 1.825 million out-of-work Britons or a 5.8 percent joblessness rate.

Prior to last week's interest rate cut, the Bank of England has been criticized for taking too long to lower the lending rate. King told Guardian Unlimited, "The world has changed since August, and so we have changed our forecasts. We have seen the biggest banking crisis since the outbreak of the First World War and arguably bigger than that."

The governor said the central bank was prepared to cut interest rate to whatever level is needed, even at zero percent, just to stabilize prices and bring inflation rate down to 2 percent for the medium term.

Ross Walker of the Royal Bank of Scotland forecast the Bank of England will make another reduction in benchmark interest rates by another 50 basis points this month to reduce it to its lowest rate since 1694.