Thursday 24th April 2008
Many financial services providers have been "heavily impaired" by the recent turbulent market conditions, it has been asserted.
The Bank of Englands monetary policy committee (MPC) makes the claim in the minutes of its April meeting.
At the event, the committee opted to reduce the base rate of interest by 0.25 percentage points to a flat rate of five per cent.
Such a move follows a number of shocks to the global economy which have prevented financial services providers from returning to a stable operating position, the MPC reveals.
According to the body, banks in the UK are currently unwilling to lend funds to one another over anything more than a "very short" period of time.
Despite efforts made by central banks to ease conditions on March 11th, the subsequent crisis to hit investment banking firm Bear Stearns negated any recovery which had been achieved.
Rather, concerns about "counterparty credit risk" had been heightened further towards the middle of the month.
"Expectations of Bank Rate derived from financial markets were broadly unchanged over the past month," the report adds.
The MPC took into account the widespread anticipation of "a total reduction of around 75 basis points" by the end of the current year.
Economists were expecting a 25 basis point cut from the MPC, the body noted, with a corresponding cut predicted in the US.
The move was the second rate reduction of 2008, following a 0.25 percentage point cut in February and no changes made in either January or March.
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