By Brian Swint Oct. 22 (Bloomberg) -- Bank of England policy makers voted unanimously to lower the benchmark interest rate by the most since 2001 in an emergency meeting this month on signs that Britain had entered a recession. The nine-member Monetary Policy Committee, led by Governor Mervyn King, said the economy had ``deteriorated substantially,'' which would slow inflation from more than double the 2 percent target, according to minutes of the Oct. 8 decision released by the Bank of England today in London. They cut the bank rate by a half point to 4.5 percent in a joint global action. ``The risk of a sharper monetary contraction had risen, and hence of a more pronounced slowing in activity and employment than was needed to keep inflation at target in the medium term,'' the minutes said. ``Given the global nature of the financial market turbulence, there was a strong argument for participating in the proposed coordinated international action.'' King said for the first time yesterday that a U.K. recession ``seems likely,'' comments which sent the pound to a five-year low against the dollar. Home Retail Group Plc, the owner of Argos stores, reported a first-half loss today and the National Institute of Economic and Social Research predicted the economy's first full-year contraction since 1991. `More Urgent' ``Though inflation has picked up the recession risks have become so much more urgent,'' Sarah Hewin, an economist at Standard Chartered Bank in London, told Bloomberg Television. ``The Bank of England is very eager to cut interest rates further. There will be a cut at the November meeting, possibly as high as 50 basis points.'' The pound dropped today to $1.6203, the lowest since September 2003, and traded at $1.6349 at 9:40 a.m. in London. The bank took its decision in tandem with the European Central Bank, the U.S. Federal Reserve and other central banks around the world. King briefed policy makers about discussions he had with his overseas counterparts and asked the committee if they wanted to participate. ``Conditions in international credit and money markets had deteriorated very markedly over the course of the past month,'' the minutes said. ``The balance of risks to inflation in the medium term had shifted decisively to the downside.'' Oil and Jobs Policy makers cited lower oil prices, the weakening economy and rising unemployment as reasons why the current 5.2 percent inflation, more than double the 2 percent target, was unlikely to become embedded in the economy through faster wage growth, the minutes showed. U.K. unemployment rose to the highest level in almost two years in September. Manufacturing confidence is at the lowest since 1980, the Confederation of British Industry said yesterday, and house prices fell at the fastest annual rate in at least six years this month, Rightmove Plc said Oct. 20. Gross domestic product will fall 0.9 percent in 2009 and consumer spending will drop 3.4 percent, Niesr said today. Home Retail Group reported a first-half loss after writing down the value of its Homebase chain and said annual profit may be at the lower end of analysts' estimates as spending slumps. The British government this month took stakes in Royal Bank of Scotland Group Plc and other banks in exchange for 37 billion pounds ($60 billion) in cash. Financial firms have reported at least $635 billion in losses and writedowns worldwide from U.S. mortgage-related investments since the beginning of last year. Bank Bailout ``The committee noted that cuts in official interest rates could not be expected to resolve the current problems in financial markets and that a significant increase in the capital sector would be required,'' minutes of the Bank of England meeting showed. Economists including Citigroup Inc.'s Michael Saunders and UBS AG's Amit Kara predict that the Bank of England will follow this month's emergency interest-rate reduction with another half-point cut at the next scheduled meeting on Nov. 6. ``The combination of a squeeze on real take-home pay and a decline in the availability of credit poses the risk of a sharp and prolonged slowdown in domestic demand,'' King said in a speech to executives in Leeds, England yesterday. The Monetary Policy Committee ``will act promptly to ensure that inflation remains on track to meet our target.'' To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

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