European central banks slash interest rates

A trio of European central banks slashed their key interest rates Thursday in a bold effort to shock financial markets and get their various economies moving.

The inflation-adverse European Central Bank cut its benchmark interest rate by 75 basis points, the largest cut in the monetary authority's 10-year history. That means the key lending cost in the 15 countries for which the ECB is the central bank now stands at 2.5 per cent.

Britain hacks away

The Bank of England wielded an even bigger financial scythe, chopping its key interest rate by one full percentage point to one per cent. The United Kingdom has not seen rates this low since 1951, the first year of Winston Churchill's last stint as the country's prime minister.

"Conditions in money and credit markets remain extremely difficult. The [bank's monetary policy] committee noted that it was unlikely that a normal volume of lending would be restored without further measures," said the bank in a press statement.

U.K. business groups said the move by the bank was necessary to prevent the island economy from stalling even further.

Central bank Basis points cutNew Rate (%) ECB 75 2.5 Bank of England 100 1 Riksbank 175 2Source: various central banks

"We need to see lending improve and to keep business working," said Ian McCafferty, chief economic adviser for the Confederation of British Industry, an important commercial organization.

The British move was more militant than some analysts had expected.

"The Bank of England will stay aggressive in December easing at least 75 [basis points] ... as it battles a bleak economic outlook," said Bank of Montreal economists Michael Gregory and Benjamin Reitzes in a commentary on interest rates at the beginning of December.

The Bank of England's move comes as new economic data shows the economies of England, Northern Ireland, Scotland and Wales sliding further into a recession.

In November, housing prices fell by 2.6 per cent, the largest one-month drop since the early 1990s. As well, new car sales in the United Kingdom dropped by almost 37 per cent in November, the steepest monthly decline in nearly three decades.

Bold Swedes

Finally the Swedish Riksbank also cut its key interest rate — by even more that the others — a record 1.75 percentage points to two per cent. This reduction is the bank's biggest cut since June 1994.

"There has been an unexpectedly rapid and clear deterioration in economic activity since October," said Sweden's central bank in a press release announcing the rate cut. "Economic activity is also expected to continue to weaken over the coming period."

On Thursday, the Business Roundtable, an association of U.S. chief executive officers, is expected to released its fourth survey of how its members see short-term economic prospects, a report likely to show business executives seeing a glum Christmas quarter ahead.