The Bank of England’s Monetary Policy Committee has slashed the base rate by 1.5 per cent today (6 November).

The cut from 4.5 per cent to three per cent comes as the country begins to face up to the prospect of a deep recession.

The Bank has not cut rates by more than half a percentage point since 1993. On 26 January 1993, long before the Bank of England was given its independence to set the base rate and with the country in a deep recession, rates were cut from 6.88 per cent to 5.88 per cent.

Edward Menashy, chief economist at Charles Stanley, says, ‘It has been noticeable over the past two months that the global economy in general and the UK economy in particular have fallen into an accelerated decline.

Figures for the UK published yesterday showed the service sector, which accounts for 75 per cent of GDP, declining sharply. The jobs market recorded its weakest level since 1997, while factory output contracted at a record pace for the longest period since the 1980 recession.

He adds, ‘There is a growing feeling that the MPC has misjudged the severity of the recession and is therefore behind the curve. Taking the view that UK output will not reach the bottom until the second half of 2009, it is now possible to see base rates reaching a level of two per cent over the course of the next year.

‘While it is clear that there has been a thaw taking place in the credit markets, banks have been reluctant to lend to their customers, in which case it remains to be seen how much of today's reduction will be passed on to borrowers.’