Bank of England cut repo rate by 0.25 per cent, but the move failed to cheer stockmarkets which fell immediately after the rate cut was announced.
London's FTSE Index fell by 193 points at 1.00 pm in the wake of the Bank of England's move. The 4 per cent drop has taken the index to a new yearly low of 4,635. The FTSE has dropped a startling 426 points in the last two weeks.
Dealers say that the Bank of England's rate cut was viewed as insufficient by the market. "People are disappointed by the rate cut," said one dealer.
The Bank of England move is the latest in a string of international rate cuts that have been introduced in a bid to prevent a global recession.
The results of yesterday's meeting of the Bank of England's monetary policy committee have been awaited with bated breath around the world.
Britain's repo rates are now at 7.25 per cent. This is the first time that Britain has cut interest rates since June 1996. The rate cut has been introduced because of the deteriorating international environment and fears about a global recession.
Several other countries including the US have already introduced the cuts.
The FTSE Index started the day on a gloomy note after US Federal Reserve Chairman Alan Greenspan's warning yesterday that the US may be slipping into a recession. The FTSE has also lost two per cent in the first hour after trading. It fell further after the announcement about rate cuts.
Financial sector stocks were particularly badly hit in yesterday's rout. Barclays fell around six per cent and insurance company Legal & General also fell by six per cent. But nearly all sectors including pharmaceuticals, oil and telecom suffered heavily losses.
The rate cut was, however, welcomed by trade union leaders and other industry leaders. The trade unions are worried that British companies are unable to compete against foreign competitors and this may lead to job cuts.
In Frankfurt the DAX Index fell by around three per cent by 2 pm (British Summer Time). Last week the FTSE fell 310 points. Bank stocks were particularly badly hit amidst fears that their profits will drop sharply this year.
