3:00PM New York, 8:00PM London- Bank of England reduces key rate by 0.25% to 5.25%. GlaxoSmithKline, Unilever, and Smith & Nephew earnings disappointed investors.

Stocks indexes in London finished sharply lower on negative earnings reports from Smith & Nephew, Unilever, and GlaxoSmithKline.

Market Sentiment

In London trading FTSE 100 stocks fell 2.58% or 151.3 to 5,724.10. Of the 102 FTSE 100 stocks 8 gained, 93 declined, and 1 was unchanged.

Stocks edged lower on the weakness in the U.S. January retail sales, interest rate cut, and weaker than expected earnings from several domestic companies.

In Paris CAC 40 Index decreased 92.63 or 1.92% to close at 4,723.80 and in Frankfurt DAX index lower 113.79 or 1.66% to close at 6,733.72. In Zurich trading SMI decreased 145.44 or 1.92% to close at 7,420.01.

The Bank of England Rate Cut

The Bank of England Monetary Policy Committee cut its benchmark interest rate by 0.25% to 5.25%, adding the prevalent market conditions are posing serious “downside risks to the outlook for inflation”.

The Bank of England lowered its rate by 0.25% to 5.25% after a decision by a nine-member governing body. The pound fell against the dollar and euro after the rate decision. Weak retail sales, falling housing prices, and consumer anxieties have all affected the economic outlook for UK. Interest rates in UK are still high among group of seven wealthiest nations and UK is likely to face weakening economy and rising inflation pressures in 2008.

According to the Bank, credit market conditions for households and businesses are tightening and consumer spending has slowed, while output growth is forecasted to further decline.

In the accompanying statement the BoE said, “CPI inflation, at 2.1% in December, was close to the 2% target, but higher energy and food prices are expected to raise inflation, possibly quite sharply, in the coming months,”

The Monetary Policy Committee also said that the lower level of the sterling will increase imports prices while inflation expectations remain high. Pound fell after the rate decision against euro and dollar.

ECB Holds Rate

The European Central Bank today held its key rate at 4% citing high upside risks in consumer prices as rising oil prices are forcing companies to pass on the cost to consumers

The European Central Bank left its rate unchanged at 4% after unanimous decision by governing council of 21 members. The President Jean Claude Trichet signaled that he will consider lowering rates if the economy show any sign of weakness. Euro fell after the rate decision. Before the meeting the ECB had signaled that it is worried that wage rise may fuel the inflation and market had interpreted it as a possible rise in interest rates.

The president in the press conference said that the spillover from the current instability in the financial market into the real economy is not known but the short term inflationary pressure must be contained from spilling over into the medium term economic outlook. The price stability remains the focus of the governing council, reiterated Trichet.


Statistical Classification of Northern Rock

The Office of National Statistics said today in a report that Northern Rock will be classified as a public financial corporation from October 9 2007.

However, the bank noted that this action must not be mistaken for nationalization of the troubled lender.