BANK OF ENGLAND CUTS RATE, ECB HOLDS STEADY

The Bank of England, the central bank of the United Kingdom, cut its key interest rate from 5.5% to 5.25% today while the European Central Bank (ECB) held firm at 4.0%. This is the second rate cut for the Bank of England while the ECB has been at 4.0% since June of 2007.

From USA Today:

Many say the bank [ECB] may have to cut rates later this year despite the rising level of inflation in the 15-nation euro zone — a bloc of more than 318 million people that accounts for more than 15% of the world's gross domestic product.

The Bank of England's decision was expected given that its governor, Mervyn King has acknowledged that the bank is facing a "difficult balancing act," with inflationary pressures from higher energy and food prices and a falling British pound weighed against data showing slowing economic activity and turbulence on financial markets.

"The prospects for output growth abroad have deteriorated and the disruption to global financial markets has continued," the Bank of England said in the statement explaining its rate cut.

ECB AND BANK OF ENGLAND HOLD INTEREST RATES

From The New York Times:

The European Central Bank held its benchmark interest rate steady at 4 percent on Thursday, resisting pressure for a cut in the face of a rising euro that some fear will hurt Europe's economies.

Markets will be paying close attention to what ECB President Jean-Claude Trichet says about how the central bank plans to ward off more disruption from U.S. subprime credit woes and the dollar, which has weakened since the U.S. Federal Reserve made a larger-than-expected rate cut.

In London, the Bank of England decided to leave its key interest rate unchanged at 5.75 percent, a move most analysts had predicted. Howard Archer, chief U.K. and European economist at Global Insight, said a move by the British bank to cut rates would have been premature.

"Indeed, a cutting of interest rates at this stage could have been seen as a panic move and risked damaging the bank's anti-inflation credibility," he said in a statement.

LIQUIDITY CONCERN CAUSES RUN ON BRITISH BANK

From the International Herald Tribune:

Hundreds of Northern Rock customers crowded into branches across Britain on Friday to pull out their savings after the mortgage-loan provider sought emergency funding from the Bank of England.

"It's scary," said Peter Pye, a 60-year-old retired university lecturer standing in a line of about 30 people outside the Moorgate branch in London's financial district. "I have my life's savings in Northern Rock."

Fears were sparked by the Bank of England's emergency loan to Northern Rock, Britain's eighth-largest listed bank, whose access to funds dried up as the cost of borrowing between banks rose in the broader credit crisis.

Deposit insurance from the Financial Services Compensation Scheme protects customers for up to £31,700 should a bank default.

In addition, the Bank of England said Northern Rock was solvent and only in need of short-term help. But many customers were not taking any chances.

Queues snaked through branches and spilled onto streets as tellers tried to soothe frazzled nerves. Some customers were satisfied by the lender's reassurances.

Northern Rock's Web site was also inundated, frustrating those who sought to withdraw funds. The bank had to restart the site "over a period of time" after unusually high usage froze the service, spokesman Don Hunter said.

"I've been trying to get my money out since 7 o'clock this morning and I'm failing," said customer Andrew Murphy." I appreciate that it's very unlikely to go bust but I don't want to take the risk with my savings."

"I don't think anything is going to happen because the Bank of England won't allow it to happen," said Paul Delamere, 46, waiting at Maddox Street to withdraw his money. Still, he was "more comfortable" with reducing his account.