The Bank of England yesterday announced a 0.25 percentage point cut in interest rates, marking what many believe to be the latest move in a global loosening of monetary policy to head off a world financial crisis. The central bank's Monetary Policy Committee said the cut - its first since June 1996 - had been made because of a deterioration in the international environment, and the increasing impact this was having on business and consumer confidence in Britain. It said its key repurchase rate would be cut to 7.25 per cent. The decision did little to boost the equity market. The FTSE-100 Share Index initially fell more than 4 per cent, before recovering to end at 4,698.9, down 130 points. Analysts had hoped for a cut of 50 basis points, particularly following comments from Chancellor of the Exchequer Gordon Brown, who had sharply reduced his economic growth forecast, saying the global economic downturn was having a greater impact than initially envisaged. The move followed a similar reduction last week by the US Federal Reserve and a larger than expected 50 basis point cut by the Bank of Spain earlier this week. Japan was the first to start easing credit, trimming its overnight rate last month, with Canada also reducing borrowing costs. Earlier this week, Italy's Prime Minister Romano Prodi asked the Bank of Italy to consider an interest rate cut, and most analysts believe it will cut rates, once its 1999 budget has been approved. Ireland is also thought to be poised to cut, following a fall in inflation to 3 per cent in the year to September, and in Portugal, a similar move is expected when it holds its money market policy meeting today. Analysts said Asian countries were destined to follow suit. 'Those countries which have a balance of payments surplus, who don't need foreign funding . . . here interest rates are related to domestic market conditions,' said Paul McNamara, emerging markets economist at Julius Baer International. 'This means in shorthand, that in central Europe and the markets of Asia, interest rates are going down.' Standard Chartered chief treasury economist Tim Fox said the weakness of the US dollar would make it much easier for interest rates in Asia to fall, where governments have already been attempting to engineer lower interest rates. 'The overall weakness of the dollar relieves the pressure on local currencies, and that should translate into lower interest rates . . . and we should see that across the board.' Mr McNamara said the currency board structure in Hong Kong meant its interest rate outlook was slightly different from the rest of the region. 'I don't think the premium between US interest rates and Hong Kong is going to close, but as US rates go down, Hong Kong rates should benefit.' Mr McNamara said the existing premium between one-year Hong Kong rates and one-year US rates was about 3.75 per cent, which, he said, should remain intact.