The Bank of England entered uncharted territory today when it cut the interest rate to an all-time low of 1%.
Today’s decision marks the fifth successive drop since October, when the interest rate was first cut from 5% to 4.5%, and follows last month’s confirmation that the UK is officially in a period of recession.
However, business groups have questioned whether the recent stint of rate cuts would be enough to kick-start the economic recovery.
John Philpott, chief economist at the Chartered Institute of Personnel and Development (CIPD) commented:
“The Monetary Policy Committee is right to cut the bank rate to 1% even though some question the merit of doing so without greater effort to increase the availability of credit to hard pressed businesses.
“Either way, however, with conditions in the job market deteriorating rapidly, what’s needed now to stem the rise in unemployment is early action to boost the supply of money to our cash strapped economy.”
Andrew Montlake, a partner at independent mortgage broker, Cobalt Capital expressed concern over the effect that today’s decision would have on savers.
He said: “Another month, another cut, although you do wonder what it will achieve. There are real question marks over the effectiveness of this latest reduction, as while it will benefit certain borrowers, it will certainly not solve the broader issues in the lending market, specifically the availability of funds.
“In fact, this latest cut could even make things worse. If lenders cannot attract savers, the great thaw in lending that we are all waiting for could be further delayed.”
© Crimson Business Ltd. 2009