Interest rate is cut to 3.5%

INTEREST rates are coming down again. The Bank of England this afternoon cut the base rate from 3.75% to 3.5%.

The decision surprised some City commentators who had expected a no-change decision from the monetary policy committee, which was meeting for the first time under the chairmanship of new Bank governor Mervyn King.

Recent economic data has painted a patchy recovery picture with a strong services sector balanced by weak manufacturing and trade data.

However, King, who succeeded Sir Edward George on 1 July, is known to be concerned about the impact of the strengthening pound on Britain's economic growth. Last week he said the 3% appreciation against the euro was the 'most important' change to economic circumstances since the MPC's meeting in June.

The rebound has been largely fuelled by cuts by the European Central Bank and by the US Federal Reserve to 2% and 1% respectively. The European Central Bank will announce its latest interest rate decision later today, though no further change is expected.

The Bank of England last cut interest rates in February when they were lowered by a quarter point to a 48-year low of 3.75% in the eighth reduction since the start of 2001.