By John Fraher Nov. 6 (Bloomberg) -- The Bank of England led European central banks in reducing borrowing costs to counter the worst financial crisis in almost a century, cutting its key rate by 1.5 percentage points to the lowest level since 1955. The U.K. central bank reduced its benchmark rate by the most since 1992, taking it to 3 percent. The European Central Bank lowered its rate by 50 basis points to 3.25 percent and Swiss policy makers cut by the same margin after an unscheduled meeting. The Bank of England's benchmark is now below the ECB's for the first time since the euro region was founded in 1999. ``It's absolutely staggering and deeply impressive,'' said Brian Hilliard, director of economic research at Societe Generale in London. ``They are clearly grasping the nettle and taking deep action. Boy, this is going to have an impact.'' Policy makers around the world are dashing to limit the damage from the global credit squeeze, cutting rates and pumping unlimited funds into the banking system. With the International Monetary Fund predicting today that the economies of the U.S., Great Britain, Japan and the euro region will contract next year, further cuts may be on the way. ``I don't exclude that we will decrease rates again,'' ECB President Jean-Claude Trichet said at a press conference in Frankfurt after the decision. Financial turmoil will hurt global growth ``for a rather protracted period.'' Pound, Euro The pound rose against the dollar and the euro after the Bank of England's move, which none of the 60 economists surveyed by Bloomberg News predicted. The currency climbed as high as $1.6037, from $1.5910 yesterday and to 80.06 pence per euro, from 81.46 pence. Europe's common currency fell as much as 1.6 percent against the dollar, slipping to $1.2746. Today's cuts follow a wave of similar moves last week that spanned by globe from Mumbai to Washington as policy makers tried to unblock credit. The Indian central bank, the U.S. Federal Reserve and the Bank of Japan all eased borrowing costs along with their counterparts in Norway, Slovakia, Taiwan and the Middle East. Central banks also engaged in coordinate reductions last month after the September collapse of Lehman Brothers Holdings Inc. froze credit markets and sparked the Standard & Poor's 500 Index's worst weekly drop since 1933. `Vicious Cycle' ``Markets have entered a vicious cycle of asset de- leveraging, price declines and investor redemptions,'' the IMF said in Washington today. ``Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.'' The Fed last month reduced its benchmark rate to 1 percent, matching the lowest in half a century. Europe's economy is headed for its first contraction since the early 1990s. German factory orders plunged 8 percent in September, the biggest drop since at least 1991, the government said today. U.K. manufacturing is in its longest contraction since 1980. Swiss exports declined for the first time in almost four years in September. The IMF said today the U.K. economy will be the G-7's worst performer next year, contracting 1.3 percent. The U.S. will shrink 0.7 percent, euro-region gross domestic product will fall 0.5 percent and Japan will contract 0.2 percent. `Marked Deterioration' ``There has been a very marked deterioration in the outlook for economic activity at home and abroad,'' the Bank of England said in a statement. Policy makers ``judged that a significant reduction in Bank Rate was necessary'' to make sure inflation didn't undershoot its 2 percent target. Stocks slumped today on concern that neither policy action nor the election of Barack Obama as U.S. president this week will shore up the global economy. The U.K.'s FTSE 100 Index plunged 5.4 percent, extending declines after the Bank of England's rate cut. The S&P 500 dropped 2.2 percent. The slowing economy has prompted an about-face by Trichet and Bank of England Governor Mervyn King on inflation risks. While the ECB raised rates as recently as July, Trichet said today that `price, cost and wage pressures should also moderate'' along with the economy. The price of crude oil has dropped by half since it reached a record $147.27 per barrel in July, and wheat prices had their worst monthly loss in 22 years in October. Some strategists expressed disappointment that the ECB acted more cautiously than the Bank of England. Investors expected ``more aggressive action,'' said Aurelio Maccario, chief euro-zone economist at Unicredit MIB in Milan. ``Over the last month, the world has changed but the ECB seems not to have realized it.'' To contact the reporter on this story: John Fraher in London at jfraher@bloomberg.net

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