Bank of England Cuts Rates to Record Low of 1.5%

The Bank of England cut interest rates by half a percentage point on Thursday to a record low of 1.5 percent as it battles to keep Britain from falling into a deep slump, and experts say borrowing costs will fall again next month.

British interest rates have now fallen by 3.5 percentage points since October as policymakers caught on the hop by the severity of the downturn pull out all the stops to revive an economy facing its first recession since 1992.

Rates in Britain never fell below 2 percent even during the Great Depression of the 1930s, underlining the scale of the current crisis hurting economies all around the world. In the United States, rates now range between 0 and 0.25 percent.

Economists said the BoE would cut again next month and interest rates could even fall below 1 percent, perhaps alongside a signal they would stay very low for a very long period of time.

"They are still in cutting mode but have taken their foot off the gas this month," said Alan Clarke, UK economist at BNP Paribas.

(Watch the video to the left for more instant reaction to the BoE decision from Lena Komileva at Tullett Prebon and Roger Nightingale from Pointon York).

The pound, down 15 percent against the euro since the BoE started its aggressive interest rate campaign in October, rose after the decision as many in the market had been pricing in a bigger move after the last month's 1 point reduction.

Short sterling interest rate futures also turned negative as markets priced in less aggressive monetary easing ahead.

The BoE itself gave little indication on what it would do next, besides saying that while the fall in sterling, and recent tax and interest rate cuts would boost activity this year, there was still a risk inflation would fall below its target unless rates came down from 2 percent.

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