LONDON (MarketWatch) -- Europe's central banks slashed key interest rates Thursday as policy makers wrestle with a global financial crisis and the threat of a deep recession.
The Bank of England's Monetary Policy Committee voted to drop its key lending rate by a full percentage point to 2% -- the lowest level for the benchmark since 1939.
The European Central Bank's Governing Council slashed its key lending rate by 75 basis points, or three-quarters of a percentage point, to 2.5%. The cut is the largest in the ECB's 10-year history.
Surveys showed a majority of economists expected a half-point cut, although financial markets had increasingly factored in prospects for a three-quarter point reduction.
Earlier Thursday, Sweden's Riksbank delivered a larger-than-expected 1.75 percentage point cut in its repo rate, bringing it down to 2%.
"In the United Kingdom, business surveys have weakened further and suggest that the downturn has gathered pace," the 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% annual inflation target if the lending rate were left at 3%.
Ongoing depreciation by the British pound would help support growth, the MPC said.
The move by the nine-member MPC follows a decision last month to cut the key lending rate by an unexpectedly large 1.5 percentage points to 3%.
But recent economic confidence data offered no sign that the November move helped buoy activity or sentiment across the manufacturing or services sectors, economists noted.
And other data and events have only served to deepen the gloom surrounding the outlook for the British economy.
Pound hits fresh euro low
The British pound tumbled to a new all-time low versus the euro ahead of the announcement, slipping to 86.93 pence versus the single currency, according to FactSet. It remained 0.5% lower against the euro at 86.41 in recent trade.
The euro showed little immediate reaction and remained around 0.7% lower against the dollar at $1.2626. Read Currencies.
U.K. stocks moved off earlier highs. The FTSE 100 index was up 0.4% in recent action. European stocks remained higher. See London Markets. See Europe Markets.
The BOE's benchmark rate is expected to be cut further in coming months. It has never moved below 2% since the bank was established in 1694.
"Overall, the gloomy flavor of the (MPC's) statement definitely shows that the easing cycle is far from over," said Chiara Corsa, economist at UniCredit MIB in Milan.
UniCredit's call for another half-point cut in January "remains clearly in place and chances that the repo rate might fall below 1.5% are significantly rising," Corsa said.
Bleak picture
The economic picture remains bleak in the 15-nation euro zone
