The Bank of England's monetary policy committee (MPC) reduced bank base rates by 0.25 per cent to 7.25 per cent in response to the global economic and financial crisis together with indications of weaker British demand and output.

But the move was seen to be "too little, too late" by the City which had been looking for a 0.5 per cent reduction to counter recessionary influences that some economists believe could develop into falling demand and deflation.

Equity markets bore the brunt of the City's disappointment as heavy mark-downs dropped the FTSE 100 index by 130.0 points to 4,698.9 at the close after it plunged by more than 200 points at one stage. Sterling, though, stabilised after its recent falls against European currencies and recovered 1.43 pfennigs to 2.7717 deutschmarks in late trade. The pound closed down at 90.35p against the British currency which also continued to rise against the weakening dollar, closing 2.08 cents higher at $1.7259.

The 0.25 per cent reduction in British interest rates by the Bank of England is the first since they reached 7.5 per cent in May after a series of increases during the previous year after the return of the Labour government.

In a statement explaining the background to the decision, the monetary policy committee emphasised the international economic and financial environment had deteriorated. Surveys and reports from the bank's regional agents have indicated a decline in business and consumer confidence and the outlook for demand and output has weakened.