The Bank of England reduced its minimun lending rate from a record 17 percent to 16 percent today in the first slight easing of Prime Minister Margaret Thatcher's harsh economic policies, which had helped plunge Britain into a deep recession.
A spokesman for the Bank of England, which announced the decision made secretly by Thatcher and her Cabinet a week ago, said the reduction was not possible because Thatcher's monetary policies appeared to be succeeding in tightening credit. The minimum lending rate, which influences the interest rates of all British banks, was raised from 14 to 17 percent last November in an effort to fight inflation by restricting the money supply and discouraging borrowing.
"The underlying demand for credit from the private sector may be beginning to ease," the spokesman said, "with increasing evidence of downturn in the economy."
But the reduction also was seen here as a symbolic response to growing pressure from business leaders, Thatcher's strongest supporters, to lower interest rates.
They complained that the high interest rates had attracted too much foreign money to Britain, inflating the value of the pound, making British exports too expensive, and at the same time making it more difficult for British businesses to borrow money needed to stay afloat.
"Industry will welcome the reduction in interest rates," Sir John Greenborogh, deputy president of the Confederation of British Industries, said today. "The CBI has been pressing hard for a cut for some time, providing this is consistent with the maintenance of firm monetary control by the government."
But he added that the reduction was only "a modest step in the right direction. We hope it will be possible for more reductions to be made soon, so as to relieve further the pressures on industry."
Anthony Frodsham, director general of the British Engineering Employers Federation, also said the interest rate reduction was "a small but welcome help in the current difficult situation."
But he added that "we trust it is a sign of the government's confidence that its economic policy is succeeding and is not a premature reaction to pressure. Interest rates cannot be expected to fall to a really acceptable level until inflation itself is reduced."
Thatcher had no comment on the reduction in interest rates. She had come under increasing pressure from her Conservative Party members in Parliament who represent constituencies where factories are closing and unemployment rising. Among industries complaining about the effect of the pound's high value on exports are the troubled automakers and textile plants.
Following today's announcement, the value of the pound fell by three cents against the dollar, to $2.34.