Interest rates are slashed in Europe

By Chris Giles in London, Ralph Atkins in Frankfurt and,Krishna Guha in Washington

Published: November 7 2008 02:00 | Last updated: November 7 2008 02:00

Interest rates were slashed across Europe yesterday as the continent's central bankers decided the outlook for their economies had taken a decisive turn for the worse.

The Bank of England cut rates by 1.5 percentage points to 3 per cent, bringing the official rate to its lowest level in 53 years. The cut was three times bigger than any seen since the central bank's monetary policy committee was established in 1997.

The European Central Bank cut official borrowing costs by half a percentage point to 3.25 per cent and Jean-Claude Trichet, ECB president, said he would not "exclude" a further cut in December.

The Czech central bank also unveiled a much larger than expected three-quarter percentage point cut, while the Swiss National Bank said it was lowering interest rates.

Equity markets slumped amid fears that global weakness would hit corporate profits. The S&P 500 index fell 5.03 per cent, after losing 5.27 per cent on Wednesday. London's FTSE 100 index closed 5.7 per cent lower, while German and French equities both fell more than 6 per cent.

The International Monetary Fund published an emergency update of its forecasts, predicting the rich world's economies would shrink by 0.3 per cent next year, the first contraction since the second world war. Last month it projected 0.5 per cent growth.

The IMF recommended that the US, Europe and China raise public spending and cut taxes.

The number of Americans filing new claims for unemployment benefits remained more than 50 per cent higher than before the financial crisis hit in 2007 as the insured unemployment rate climbed to its highest level since February 1983.

Kevin Warsh, a Federal Reserve governor, said there were "notable signs of improvement" in credit markets, but added that financial markets "remain strained" and would remain so while financial sector business models were still in "substantial flux."

In what may be a signal that the flurry of policy interventions is drawing to a close, he said "a dose of patience" may be required. "New prescriptions, however well-intentioned, can prove unsettling to a patient who is searching to find his footing."

The Bank of England said its dramatic move was a response to tightening credit conditions; evidence of a "severe contraction" in the economy over coming months; and a dramatic extinction of inflationary pressure.

The size of the cut in UK interest rates appeared to have taken the ECB by surprise, but Mr Trichet played down differences in approach.

HBOS & Lloyds - Are your savings safe?

Turmoil inthe financial markets; naturally makes consumers worry about the safety of their savings but unless they have more than £35K with a savings provider then there is no need to fret.

The Financial Services Compensation Scheme, covers 100% of the first £35K, per person, per deposit taking institution. Therefore, if you ensure that you don't have more than this limit with any one provider, if in the unlikely event the worst should happen, you will get all your money back.

As each individual person is covered if a couple have up to £70K in a joint account, then in the event of a bank failure they can both claim separately up to the £35K limit to get back all their savings.

However, savers need to be vigilant as if the institutions are registered under one banking licence, they will only be covered once.

For example Bank of Scotland, Halifax, Birmingham Midshires, Intelligent Finance and SAGA are all covered under the Bank of Scotland banking licence. This means that if you had £35,000 with each of them, should they all have problems repaying your money, you would only receive £35,000 back from the Financial Services Compensation Scheme, not £175,000. However, the Sainsbury Bank brand which is part of the HBOS group has a separate licence.

The situation varies from institution to institution. NatWest, Royal Bank of Scotland, Tesco Personal Finance, Ulster Bank and Coutts & Co are all part of the same group, but all have separate licences. Thus, if your money was with each of them, you would receive up to the full £35,000 back from each company.

In order to find out if the institutions where you savings are held are covered separately the best thing to do is to either log on to the FSA's website and check if the firm is authorised. Alternatively, you could contact the FSA's consumer website www.moneymadeclear.fsa.gov.uk or call their helpline on 0845 606 1234.

If you are planning on opening a new account with an institution, make sure you know which institutions your existing savings are with. Then when you contact the new institution, check with them that they are not part of the same group and covered by the same banking licence.