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Interest rates cut to historic level

The Bank of England has cut interest rates by 0.5% to 1.5%. Thursday’s noon announcement means it is the first time interest rates have fallen below 2% since the central bank was created in 1694.

It follows a drop of 1% to 2% last month - the lowest level they had reached in more than 50 years - and came after calls by experts for the Bank’s Monetary Policy Committee to make a fourth consecutive monthly cut.

The move was generally welcomed by business leaders and economists but they warned that interest rate cuts alone would not lift the economic gloom.

John Mowbray, vice president of the North East Chamber of Commerce (NECC), said: “NECC welcomes the MPC’s decision to cut rates further this month and help businesses facing a tough year ahead.

“Recent cuts have taken rates down to unprecedented levels and banks must be helped and encouraged to pass these cuts on. We hope that these measures, along with recent steps taken by the Government, will be backed by further support for business as we approach Budget 2009.

“It is vital that the availability as well as the price of credit is addressed, and there must be continued effort to ensure banks are able and willing to lend to businesses.”

Sarah Green, CBI North East Regional Director, said: “Today’s more modest interest rate cut reflects the Bank’s recognition that interest rate reductions on their own cannot restore credit flows, the most important factor determining the prospects for the economy.

“However, this move to support business and consumer confidence will be welcomed.

“If credit flows can be restarted, the monetary stimulus now in the pipeline is significant, especially when the fall in the pound is taken into consideration. A more gradualist approach to rate setting is likely in the coming months.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .