The Bank of England’s monetary policy committee has dropped the official Bank Rate to five per cent.
Its announcement followed a series of negative economic predictions and a tightening of credit markets.
The International Monetary Fund (IMF) reduced its predictions and now expects growth to slow to 3.7 per cent in 2008 – 0.5 percentage points lower than it previously forecast.
IMF chief economist, Simon Johnson noted "significant strains in housing and credit markets are likely to be protracted" and said the US will move towards recession.
Problems in US property markets sparked an international credit shortage, which in turn affected UK commercial property values.
Howard Archer, UK chief economist at Global Insight, said there were more interest rate reductions to follow: "Further out, we expect interest rates to fall to a low of four per cent in the first half of 2009."
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