By PHILIP THORNTON
Interest rates look set to tumble around the world after this week's lead set by the United States Federal Reserve.
The Bank of England yesterday gave a strong hint it would follow suit with a rate cut next month and analysts expect the European Central Bank will be forced to cut rates in the face of evidence of an accelerating global downturn.
The Federal Reserve cut its main lending rate by 0.5 per cent to 4.5 per cent. It was its fourth half-point cut in as many months.
The surprise decision, taken during an emergency conference held by the Federal Reserve's chairman Alan Greenspan has been seen as a sign the bank will do anything to ensure the corporate sector avoids recession.
It cited worries over recent sharp falls on Wall Street, weaker consumer spending and signs of a global economic slowdown.
The decision followed a week in which a succession of American blue chip companies announced sharp cuts in profits and jobs.
Nick Stamenkovic, an economist at Nomura International, said rates could fall as low as 3 per cent by the northern summer.
"The Fed is clearly prepared to pull out all the stops to prevent a recession."
But Pierre Ellis, of Primark Decision Economics, warned: "It appears the Fed sees something the market does not see."
The rate cut sent share prices soaring on markets around the world, a trend further boosted by the publication of the minutes of the Bank of England's interest rate meeting two weeks ago.
The meeting ordered a 0.25 per cent reduction in rates two weeks ago, but three of the nine members voted for a 0.5 per cent cut.
"All members agreed that the prospects for the world economy now appeared rather weaker than at the committee's previous meeting," the minutes said.
"Some of them felt that it might not require much additional downside news to justify further rate cuts."
Ian Plenderleith, an executive director at the Bank of England, joined the known "doves" DeAnne Julius and Sushil Wadhwani, in voting for a 0.5 per cent cut.
One analyst described Mr Plenderleith's vote as "something of a shock."
The Confederation of British Industry hailed the Fed's move as a "bold decision that British business will welcome."
Digby Jones, its director general, said: "This action will ease fears of a prolonged slowdown in global growth and hopefully head off the storm clouds gathering over the world's biggest economy."
The likelihood of the Bank of England further cutting interest rates next month was boosted by a March inflation figure of 1.9 per cent, meaning inflation had undershot the Government's target of 2.5 per cent for exactly two years.
Sudhir Junankar, a senior economist at the Confederation of British Industry, said: "The way now seems clear for further interest rate cuts, which would help offset the threats to economic growth."
Ian Fletcher, the chief economist for the British Chambers of Commerce, said: "I see scope for a rate cut, as inflation continues to undershoot the target and also to underpin business confidence."
The March inflation figure would have been lower but for a surge in meat prices caused by foot-and-mouth disease. Food inflation was 1.8 percentage points up to its highest level since July 1996, with some meat products 14 per cent more expensive than they were a year earlier.
But Simon Rubinsohn, chief economist at fund manager Gerrard, said inflation was still on track to fall below 1.5 per cent.
"Crucially, this will not stand in the way of the Bank sanctioning a further rate cut," he said.
In contrast, inflation in the eurozone stayed stubbornly above the ECB's target ceiling of 2 per cent, March coming in at 2.6 per cent.
This appeared to support the ECB's unpopular decision to hold rates at 4.75 per cent, making it the only major Central Bank not to have followed the Fed.
Two senior European ministers clashed with the bankers, as member states continued to pressure the ECB to cut rates.
Didier Reynders, chairman of the Eurogroup of finance ministers, said the ECB must "play its role" in tackling the impact of the global slowdown.
Laurent Fabius, France's Finance Minister, said it should take account of "economic realities.
But European central bankers rejected the criticism and said political interference would damage the bank's reputation for independence.
Edgar Meister, a member of the German central bank, said the ECB was acting "appropriately" and fellow Bundesbanker Guy Quaden said financial markets should not dictate policy.
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