Europe slash rates

There was a time when Bank of England governor Mervyn King said that central banking should be boring. Well it certainly isn't boring at the moment. From Reuters yesterday:

The Bank of England made a shock 1.5 percentage point cut in interest rates on Thursday to just 3 percent, their lowest level in more than half a century, as it seeks to prevent Britain from sliding into a deep recession.

That was the biggest official interest rate cut since the 1981 slump and completely wrong-footed analysts who had mostly been predicting a half-point reduction. Not one in 62 polled by Reuters had expected such a massive move.

The Bank said the economic outlook had got a lot worse and drastic action was now needed. Economists said more rate cuts would still follow and it was possible Britain could soon have rates the same level as in the United States -- 1 percent.

Large as it is, the rate cut is probably commensurate with the rate of decline in the economy and asset prices. From Reuters:

Britain's biggest mortgage lender, Halifax, said house prices fell 2.2 percent in October, the ninth successive decline. That took house prices down 14.9 percent compared with a year ago, the steepest fall since records began in 1983...

And official data on Thursday showed new construction orders fell 19 percent in the three months in September compared with a year ago, with orders for private housing 53 percent down in that period.

And another Reuters report indicates that UK GDP is shrinking.

The country's economy shrank 0.5 percent in the three months to October, and lower interest rates are unlikely to help boost growth, a leading think-tank said on Thursday.

In its monthly survey, the National Institute of Economic and Social Research also said that economic output in October alone fell on the year, the first time that had happened since the recession of the early 1990s.

The BoE wasn't the only central bank on the move yesterday. From Reuters:

The European Central Bank cut interest rates by 50 basis points on Thursday and signaled another reduction was possible next month, as inflation pressures ease and the euro zone faces its first recession.

"I didn't exclude a further cut in December, depending on the data, depending on the information that will be gathered, depending on the (economic) projections that we could examine at the time, including of course the staff projections," ECB President Jean-Claude Trichet told Reuters Television in an interview...

Thursday's widely expected move, the second such cut in just under a month, took the ECB's benchmark rate to a two-year low of 3.25 percent...

The Swiss National Bank also cut its interest rates on Thursday by ... 50 basis points.

Denmark and the Czech Republic also cut interest rates yesterday.

The rate cuts come as more record-breaking economic news came out from Europe. From Bloomberg:

Manufacturing orders in Germany, Europe's largest economy, dropped by a record in September, led by a slump in foreign demand for factory machinery.

Orders, adjusted for seasonal swings and inflation, fell 8 percent from August, when they rose 3.5 percent, the Economy Ministry in Berlin said today. That's the biggest drop since records for a reunified Germany began in 1991. Economists expected a decline of 2.3 percent, the median of 35 forecasts in a Bloomberg News survey showed.