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Bank Of England reduces base rate by 1%

This was perhaps the worst kept secret in the financial markets as the Bank of England reduced base rates by 1% to a 50 year low of 2%. This is a drastic step although it was flagged only a few days ago by Mervyn King, the Governor of the Bank of England, and was wholly expected by both the investment markets and the currency markets.

In traditional recessionary periods the change in interest rates seen today would normally signal the bottom or near bottom of the economic slowdown but we are not in traditional marketplaces. The Bank of England has even commented upon the need for further fiscal stimulus for the UK economy as cheaper money will not be the answer to everything. It would appear that the Bank of England is working on a "nuclear option" which would see a massive injection of cash into the UK economy on top of the figures already suggested.

As interest rates approach zero the impact of further reductions is reduced hence the reason why the "nuclear option" is being openly discussed in financial markets at the moment. There is still much work to do to improve the UK economy and place it back on a stable footing.

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