European central banks took bold action Thursday to ward off a looming recession, slashing their benchmark lending rates to boost business investment and household spending. The ECB cut the cost of borrowing in the 15-nation eurozone by a historic 0.75 percentage points to 2.50 percent, the biggest cut in the ECB's 10-year existence, as the eurozone faced its first recession, after the Bank of England had slashed its main rate by a full point to 2.0 percent. The European Central Bank cut interest rates a record 75 basis points to 2.50 percent on Thursday. It is the biggest cut in the ECB's 10-year existence and is a step up from the two 50 basis point cuts made since October. It also suggests a change in tack by the bank despite recent comments from top officials that bumper cuts would serve little purpose and could spark fear in financial markets. The Bank of England on Thursday slashed its key lending rate by a full percentage point to 2 percent, the lowest level since 1939 as policy makers wrestle with a global financial crisis and the threat of a deep and long-lasting recession. “In the United Kingdom, business surveys have weakened further and suggest that the downturn has gathered pace,” the bank's rate-setting Monetary Policy Committee said in a statement announcing the move. “Consumer spending and business investment have stalled, while residential investment has continued to fall,” the MPC said. The committee said there was a substantial risk of undershooting its 2 percent annual inflation target if the lending rate were left at 3 percent.Ongoing depreciation by the British pound would help support growth, the MPC said. For the ECB it was also an unprecedented third rate cut in two months, following a coordinated cut with other central banks on October 8 and another reduction in early November. In Stockholm, the Swedish central bank had set the tone early in the day by nearly halving its key rate by 1.75 percentage points to 2.0 percent to “dampen the fall in production and employment” due to the global financial crisis.
